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Can You Buy a House at 18?

Homeownership is one of the most rewarding things you can do. House hunting is exciting, especially for first-time buyers. The excitement of searching for your first house is unmatched, as you look to make your dreams a reality.

The home buying process can be complicated, though, as there are many steps to take to complete real estate transactions. It isn't just about finding a good real estate agent to show you homes for sale and then signing on the dotted line.

Unless you're independently wealthy and have enough cash to purchase your first home without a mortgage, most lenders will require you to have reliable income to qualify for the best mortgage rates. They'll want to see bank statements to prove the steady income you'll need for your house purchase. 

All of this begs the question, can you buy your own house at a young age? Is 18 years old too long to buy a house? Let's dive into this further.

Do You Have to Be Over 18 to Buy a House?

Legally speaking, you can sign legal agreements when you reach "the age of majority," which is 18 years old in the United States. Once you reach that age, you'll have the legal authority to purchase a home on your own. This means that you'll be able to sign the necessary legal documents to make a home purchase without a co signer. 

You can technically make a home purchase before you're 18 years old, but you would need a co signer to do so at that young age

How Young is Too Young to Buy a House?

Age is just a number, as the saying goes. What would qualify as "too young" for one person might not be considered so for another. In fact, whether you're ready to buy a house or not typically has more to do with whether you are financially responsible enough than your age.

That being said, there is a reason why the median age of first time buyers in the U.S. was 34 years old as of 2018, according to a report from Zillow. That age has risen by a few years recently because of outside forces such as people needing to find stable employment so they can make more money, as well as the rising costs of owning a home.

Benefits of Buying a Home When You're 18

There are many benefits to purchasing a house young. First, it provides you stability from a young age. Knowing where you're going to live for the foreseeable future -- and knowing that your dwelling is yours and yours alone -- goes a long way in improving your psychological outlook on life.

Once you buy a house, you can start to lay down some roots in your community, and continue building your career. Making a regular mortgage loan payment is one of the best ways to positively influence your credit report. While you'll obviously need a decent credit score to qualify for a mortgage in the first place, you can improve that score even further by making on-time monthly mortgage payments. 

Speaking of a mortgage, there are many great products that mortgage lenders offer for first time homebuyers. This includes FHA loans and other home loan programs geared toward younger buyers, which can reduce the required down payment and even allow you to have lower monthly payments.

Finally, making a mortgage payment will help you build equity, which is one of the best investments you can make. In a way, buying a house is an effective way to save money and get a compound return on your investment at rates that are significantly better than dumping your money into a savings account.

Minimum Requirements to Buy a House

Assuming you will need a home loan when you're buying a house, there are some minimum requirements that most mortgage lenders have. These requirements may differ slightly depending on the lender, property and type of mortgage you select, so just keep that in mind before you start your search.

Income

All lenders will require you to have stable income, whether you want to buy a house young or later in life. You'll need to provide documents such as W2s, pay stubs, bank statements and maybe even a letter from your employer to verify your income. This gives the lender peace of mind to know you can afford to make the mortgage payment.

Credit History

There are many mortgage options that you'll have, and each comes with different requirements. If you want to qualify for conventional loans, you'll need to have a good credit score. Other programs such as FHA loans make accept bad credit scores or not a long credit history, but that depends on other factors. Ultimately, the goal should be to have an established credit history with credit scores as high as possible.

Debt-to-Income Ratio (DTI)

Mortgage lenders will look heavily at debt to income ratio to determine whether they will give you a preapproval letter that you can take to your real estate agent. Each different type of mortgage and lender will set a different minimum DTI you'll need to qualify. An FHA loan, for example, may have a lower DTI than another type of mortgage.

Ultimately, you want to have your total income be much higher than your total debt. The latter will include any outstanding loan you have in your name, including credit cards, a personal loan, student loan debt and any other debt you may have.

Closing Costs

There are closing costs that you'll be required to pay when you buy a home, even if you go with an FHA loan. Some of these closing costs are based on a percentage of the purchase price of the home. Most lenders will require you to have paid an entire year of homeowners insurance upfront. Most will also have payment requirements, including a certain amount toward your property taxes upfront, which will then go into an escrow account.

Down Payment

You will have some latitude with down payments in terms of how much you want to put down. The mortgage company may set a minimum down payment amount for they type of loan you use. Conventional loans, for example, typically require a down payment of 20% to avoid paying what's called Private Mortgage Insurance (or PMI), which is extra money you have to pay each month on top of your mortgage loan payment.

Steps to Take Before Buying a House in Your 20s

There are a few basic things you can do in your 20s that will put you in a great position to be pre approved for whatever mortgage you want to qualify for. 

Avoid Expensive Cars

As a young person, it's easy to be tempted by expensive cars. After you get your first source of income, you may want to spend some of it in a fun and flashy way. But, having an expensive car payment could make it harder for you to get pre approved for a mortgage loan. 

Mortgage companies will look at all debt that's in your name, including car loans, personal loans and other costs when deciding whether to approve you for a mortgage. So, hold off on getting a loan for that expensive car until you buy a home

Work on Your Credit Score

The better your credit score is, the better interest rates you'll qualify for. Whether you're looking at credit unions or traditional banks for your loan, you'll want to improve your credit score as much as possible. You can start to build a solid credit history by opening a credit card and paying that loan off each month. On-time payments will start to build your credit score so that you can qualify for lower interest rates.

Prepare Your Credit & Finances

 

Starting to build your credit score in positive ways is always advisable. It's also a good idea to start taking a portion of your income and stashing it away for a down payment. This will help you to afford a home when you're ready to buy. In addition to a solid credit score, a sizable down payment will help you avoid paying PMI. 

Not only will saving money help you build a sufficient down payment, but it'll also help you build a solid emergency fund, which will come in handy when you own a home. So, work on that credit score and build that down payment so you can be in the best position possible to buy a home. 

 

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