The single biggest purchase you will make is your home. Many people will spend 30 years (or longer if they continue to refinance) paying off their mortgage. Because it’s such a large obligation, people often wait to buy a home until their 30s or later. According to Experian, the average age of first-time homeownership in the United States is 34 years old. However, others get a mortgage at a young age.
Benefits of Getting a Mortgage at a Young Age
Getting a mortgage when you’re in your 20s can be beneficial for several reasons.
Builds Equity
Buying a house can help you build equity. As you pay down the loan and the home goes up in value, you develop equity, which can help your net worth. (Of course, the Great Recession taught us this doesn’t always happen, but likely it will.) Then, if you choose to move to a different home later, you can use that equity for your next down payment.
Can Have Your Mortgage Paid Off in Your 50s
Since you begin your mortgage in your 20s, you can have it paid off in your 50s, or even earlier if you take out a 15-year mortgage. Paying off your mortgage before you retire will allow you to have a more comfortable retirement. By buying a home early, you are on track to do that. Plus, once you’re in your 50s and no longer have a mortgage, you can use that money to bulk up your retirement and investing accounts.
Drawbacks of Getting a Mortgage at a Young Age
Having a mortgage at a young age also has significant downsides, which is why not as many people take on this obligation at a young age.
Difficult to Save a Down Payment
Unless you want to pay private mortgage insurance (PMI), you should have at least a 20% down payment when you purchase. If you’re buying a $200,000 house, that is $40,000, which can be difficult if you’re in your 20s. Even worse, if you live in a high cost of living area and have to buy a house for $600,000 or more, saving the 20% down payment at such a young age can be nearly impossible.
Life Circumstances Can Change Quickly
When you’re in your 20s, life can change quickly. You might meet someone and be married in less than two years. Or, you might take a job that will require you to move across the country. You might lose your job and have to move back in with your parents. If your life changes suddenly and you’re saddled with a house, that can be inconvenient at best.
For instance, I had two friends that bought a house together when they were each 24 years old. In less than three years, they had both met significant others, gotten engaged, and were ready to move on with their lives. However, the house languished on the market for many months, and, eventually, they had to make a drastic price cut to finally unload the house.
Less Money for Entertainment
Owning a home is expensive. Besides the down payment, you also must set aside money for regular maintenance and repairs. Most experts recommend setting aside 2 to 4% of the purchase price yearly. If you buy a home for $250,000, you should set aside $5,000 to $10,000 a year for repairs. That is a significant amount of money that you no longer have available for activities like going out with friends or traveling.
Final Thoughts
Buying a home and getting a mortgage at a young age can help your bottom line and your future, especially in retirement. However, it can just as easily impede the next step in your life. Think carefully before you buy.
Read More
How to Pick the Best Mortgage Loan for You
How Do Mortgages Work? The Ultimate Guide
How to Manage Rewards from Multiple Credit Cards
P.s. if you are looking for more really solid personal finance information, consider checking out personalfinanceblogs.com. It’s a neat little blog aggregator I found last year that has a ton of great articles.
Melissa is a writer and virtual assistant. She earned her Master’s from Southern Illinois University, and her Bachelor’s in English from the University of Michigan. When she’s not working, you can find her homeschooling her kids, reading a good book, or cooking. She resides in New York where she loves the natural beauty of the area.