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File Image: IOL

Why buying a house in your 20s could be the perfect step towards financial freedom?

By Opinion Time of article published Jun 23, 2021

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The principle of owning real estate to become wealthy has never been more true today than it was back then. Simply think of the many investors who have built enormous wealth and rose up to create their own legacy from it.

The principle of owning real estate to become wealthy still holds true now. In fact, we can make a strong case that it is far truer now than it was back then. When you ask people, who are twenty or thirty years older than you if they would buy real estate at a young age, they're more than likely to say yes. It will help lead you to financial freedom in your future.

Benefits of buying a home in your 20s

The benefits of homeownership are huge—especially when you’re younger. In your 20s, a home is a long-term investment, and if you stay long enough, it can mean building serious wealth over time. Sell the home at a profit later on, turn it into an income-earning rental property when you’re ready to move up, or enjoy fully paid-off housing during your retirement years (though those may be far down the line!)

Homeownership also means:

  • Consistent, reliable payments – No more annual rent hikes from your shady landlord.
  • More control to customise the property – Forget “accent” walls. Paint, upgrade, renovate and do whatever you want to your home once you own it.
  • Great credit – Getting a mortgage loan at a young age can help you establish a solid credit history, which means a good credit score and ample financial opportunities later on.
  • Tax benefits – Homeownership comes with several tax benefits that can lower your tax burden and increase your annual refund.

You’ll also likely save on monthly costs. Rents have been skyrocketing in most major cities in recent years, with the average mortgage payment coming in well under the average rent. You also have the option of renting your property on Airbnb or other similar sites to make extra cash as needed.

How young is too young to buy a house?

There’s no wrong or right time to purchase a house. Legally, you can buy and own real estate at the age of 18, but that doesn’t necessarily mean it’s the right move for every 18-year-old.

A home is a huge and expensive purchase, and it’s one you’ll need to live with for years or even decades of your life. At a bare minimum, you will want to wait until you have consistent income, a stable job and a decent credit score, as this will allow you to both get an affordable mortgage loan, as well as cover that mortgage payment month after month while you’re in the home.

What to consider before buying a house in your 20s

Before seriously considering a home purchase, make sure to take into account the full scope of financial factors and other lifestyle considerations.

You should think about:

Your career

How established are you in your job? Do you expect to be there long? Could your career take you out of the area, therefore requiring a move? You want to stay in the home at least long enough to recoup your transaction costs and break even on the property.

Your income

How much do you make? How much of that after-tax income could you afford to put toward housing? Use a mortgage calculator to see how much your mortgage will likely cost, and make sure you’ll have the income to cover that, plus the costs of maintenance/repairs and your regular monthly expenses like utilities, food, phone, car payment and more.

Your future

Is marriage in your future? Kids or pets? Can you afford a home that will accommodate those changes? You’ll want to make sure a home purchase fits with your future life plans and goals.

Interest rates

What are mortgage interest rates at right now?

Before you can close on your dream home, you must understand the steps to buying a house. Navigating the home-buying process can be challenging, but it becomes much easier if you have a plan and a clear path forward.

There is no time like the present to start working on your goals and dreams. When it comes to buying property, the rule is exactly the same: it is extremely important that you prepare for your home buying journey as soon as possible.

You wouldn’t want to find the perfect house only to realise that you forgot major things during your planning stages.

Here are some easy steps to follow on your home buying journey:

1. Start Your Research Early

As soon as you can, start reading Web sites, newspapers, and magazines that have real estate listings. Make a note of particular homes you are interested in and see how long they stay on the market. Also, note any changes in asking prices. This will give you a sense of the housing trends in specific areas.

2. Got credit?

The first step is to verify your credit score. It is highly unlikely that you will be able to buy a house cash and you will probably need to get a loan.

Hopefully this isn’t a surprise, but getting a home loan requires a good credit score. It’s a good time to check your credit reports for errors. Remember that improving your credit score significantly can take at least six months to a year, so get started if you need to! By verifying your credit score you make sure that you are clean as a whistle before approaching any institution.

As a South African, you have the right to review your credit score on an annual basis and it won’t cost you a cent!

3. Start saving

You will need cash reserves to buy a home, and you will need to prove to a lender that you can afford home loan repayments that may be higher than what you currently pay in rent. In other words, start saving now!

4. Remember that deposit!

For many people, a deposit is regarded as a curse word and often seems like a form of punishment. However, when it comes to buying a house, the deposit can become your best friend. So, take the time to save as much as you possibly can. After all, the bigger your deposit is when buying, the less your instalments will be over the course of time!

5. Get your documentation in order

Begin to collect documents that you’ll need to verify your finances on the home loan application: payslips, bank statements and, if you have freelance or self-employment income, copies of your last two tax returns.

6. Go shopping…for a Home Loan

Gone are the days where we have to travel from one bank to another to apply for a home loan only to get shot down and start all over again!

7. Close the Sale

At closing, you will sign all of the paperwork required to complete the purchase, including your loan documents. It typically takes a couple of days for your loan to be funded after the paperwork is returned to the lender.

Property ownership is more accessible to aspirant first-time buyers who previously could only afford to rent than ever before. Renters currently could be in a position to buy a home at a lower monthly cost than what they are currently paying in rent.


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