Many people in their twenties may not think they are old enough to buy a home, but if you can afford one, home-ownership can be a lucrative and rewarding idea. Here are five questions to help you decide if you are ready for home-ownership:
1. Can You Afford It?
Obviously, the first question you should consider is whether or not you can afford a house. However, as a young person without children or a spouse, you may not have to pay the entire mortgage like you would have to if you were married with kids. Instead, you can get creative by renting out parts of the home to friends or boarders.
Keep in mind that if you get a fixed interest rate, your mortgage payment won't change for the entire life of your mortgage. Provided you do not move, that means that in ten or twenty years when you have other obligations, you will still be enjoying the low mortgage payment you secured in your twenties.
2. Are You Planning On Staying In The Same Location For A While?
Buying a home can be a lengthy process. It's worth it if you want to stay in the same home for years, but if you plan to uproot yourself soon, it may not be worth it. In rare cases, where home values are climbing quickly or if you could easily rent out the home, buying may be the correct decision. As a general rule of thumb, however, if you plan to move in the next five years, do not buy a home. Talk to a buyer's advocate first about your specific situation.
3. Will Homeownership Help You Financially In The Long Run?
In almost every case, the answer to this question is yes, but before accepting a mortgage, you should look closely at how home-ownership will benefit you in the long term. For example, in 2014, house prices increased by about 6 percent (when adjusted for inflation) in Australia's biggest cities. If you bought a home now for $200,000 and the value of real estate continued to increase by 6 percent per year, your home would be worth approximately $320,000.
That means you have essentially earned that amount of money just by buying a home. If you had waited, in contrast, you would have to buy a home with that price tag while you are in your thirties or forties, meaning that you would have to spend much more than you would have if you had just bought while you were young.
4. Does The Idea Of Being A Landlord Sound Enticing?
Many young people buy with the intention of becoming a landlord eventually. Essentially, you live in the home you have purchased until local rent averages exceed the amount of your mortgage payment. Then, you rent that home to a tenant and you buy a new home. Your tenant's rent payment covers the cost of mortgage as well as taxes and upkeep, and you pay the remainder. As soon as the home is paid off however, the rent payment can be used exclusively for taxes and upkeep, and you get to pocket the rest!
5. Do You Have Time And Money To Cover Upkeep?
In addition to the financial questions you consider, you should also look at the time, skills and cash involved in keeping up a home. If you love to garden and do repairs, then home-ownership is ideal for you. However, if you know that you cannot handle upkeep, buying a home may lose you money – and unfortunately, if you wreck the home, you won't be able to sell it or will have to sell it for less than you bought it for. However, there are other options. You could pay someone to do all of the upkeep for you, or you can buy a condo or a flat to minimise upkeep responsibilities.
If you have answered yes to all five of these questions, it's time to contact a lender, a real estate agent or a buyer's advocate and start looking for a home to buy.