Homebuying at every age, every stage
Though we’re firm believers that age is just a number, it can definitely make a difference with the stage you’re at in your homebuying process. Your age doesn’t define you, but it may define your list of priorities or the potential challenges that could arise along the way.
Whether you’re looking to buy your first home, you’re considering refinancing or you’re downsizing after years of homeownership, here’s what you need to know as you start the process.
20s—Get in the game
Welcome, first-time homebuyers. At this stage in your life, you haven’t had much time to save up for a down payment, you haven’t built up any previous home equity and it’s possible you’re carrying some student loan debt. But that doesn’t mean it’s impossible to become a homeowner.
Making your down payment
First things first, let’s talk down payment. While putting down the standard 20% means you’ll eliminate the need to purchase Private Mortgage Insurance (PMI), it’s not the only way. In fact, 68% of buyers are making down payments of less than 20%. Some buyers take advantage of low down payment options offered with FHA loans.
If this is something you’re considering, you’ll want to ensure your credit is as strong as possible and you may also want to look into Down Payment Assistant Programs (DPAs).
Typically, DPA programs come in the form of a second mortgage with low or no interest rates, offered by city and state government, and can be deferred (or in some cases completely forgiven) so long as certain requirements for eligibility are met. You can talk to your Guaranteed Rate Affinity loan officer for more information on programs in your area.
Some state housing authorities also offer down payment grants, or Mortgage Credit Certificates (MCCs) that can be used to claim tax credit for a portion of the mortgage interest paid in a given tax year.
Different from a tax deduction, an MCC provides tax credit to help increase housing payment affordability. A knowledgeable tax advisor is a great resource to discuss tax credits and potential tax benefits associated with a home purchase.*
Working with your debt
Now let’s move onto debt. You don’t have to be completely debt free in order to qualify for a mortgage. What’s particularly important is your debt-to-income ratio (DTI), which reflects how much of your monthly income goes toward paying off debt.
Generally speaking, a DTI of 45% or less is required on conventional loans, while other loan programs will allow for a debt-to-income ratio above 45%. A Guaranteed Rate Affinity loan officer can provide additional information.
Your credit score will also play a large role in determining qualification. Credit scores range between 300-850 and are widely known as FICO. With many factors to calculate your FICO, a credit score over 700 will usually allow access to the lowest rates.
If you’re unsure if taking on a mortgage payment is a wise financial choice, it’s a good idea to speak with a financial planner or credit professional.
30s—See where you stand
While you may have had a little more time to start saving, it’s possible you’ve also run into more expenses along the way. Weddings anyone? Or maybe you’ve welcomed a child into the world. Diapers, onesies, perfecting that nursery—it can all add up fast.
So, if you haven’t bought yet, you’re not alone. According to the National Association of Realtors® (NAR), 52% of buyers between the ages of 29 to 38 were first-time buyers. In this case, the tips in the section above (20s) would apply to you too.
Another significant portion of buyers in their 30s is comprised of people who have bought in their 20s but are now looking for more space or better amenities. Whether it’s to accommodate a growing family or you’ve decided you want a condo equipped with a pool and rooftop deck, you’re ready to make the upgrade.
In this case you can use some of the equity you’ve built up as part of your down payment, but you’ll also have to juggle buying and selling at the same time. The first thing you’ll want to do is get a comparative analysis of your home, so you have an estimate of what it will sell for. Then you can decide if you’re going to go the ‘sell it first’ or the ‘buy it now’ route.
40s—Find or perfect your “forever home”
In this age range we still see some rookie homebuyers stepping into the market, as NAR reports 24% of buyers between the ages of 39-53 are first-time buyers, but many already have some equity built up. Like your 30s, your 40s might be a time where you’re looking for more space. As your kids grow, or your income grows, your 40s can be a great time to look for that “forever home.”
Buying a home with the help of the equity from your first home can be a game changer for your budget. When you sell your current home, you’re left with the difference between the sale price on your home and the amount you still owe. Oftentimes it becomes easier to put down a bigger down payment and therefore have less of your home to finance, reducing your monthly mortgage payments.
If you’ve already bought, and you’re happy with where you’re at, your 40s can also be a good time to look into refinancing. Are you still paying PMI? Has the overall value of your home increased? With low mortgage rates, we’ve seen an uptick in homeowners looking to refinance with a new rate.
This stage of homeownership could also be the perfect time to consider making any renovations that have the potential to boost your home’s value.
50s and beyond—Use your equity
While some people stay in their homes forever, others find that at some point they don’t need all that space anymore. If you’ve become an empty nester, you might be thinking about downsizing.
Maybe you’re looking to swap out your landscaping duties for a condo where the homeowner’s association takes care of mowing the lawn, raking the leaves and shoveling the snow. Or maybe you’ve recently retired, and you no longer have to factor in your commute to the office.
If you’ve already paid off your mortgage for your current home, then you’ll have the money from the sale of your home to put toward purchasing your new place. But even if you haven’t paid the entirety of your mortgage, you can still use the equity you’ve built up over the years.
You’ll want to have your home appraised. If your home is worth more than you owe on your existing mortgage, you might be able to pull out equity and secure a lower interest rate.** Be careful that whichever route you go, you’re not reaching into your retirement fund.
No matter which stage you’re in, it’s helpful to speak with a mortgage professional to help you make the best decisions for you and your family. Everyone’s situation is unique and there are so many options to help you achieve both your financial goals and your homebuying dreams.
*Guaranteed Rate Affinity does not provide tax advice. Consult your tax advisor for any tax related questions.
**Savings, if any, vary based on consumer’s credit profile, interest rate availability, and other factors. Contact Rate, Inc. for current rates. Restrictions apply.