4 Major Financial Benefits Of Buying A Home In Your 20s

Buying vs. renting: it’s a never-ending discussion, and something that’s constantly on our minds here at TFD. Property ownership used to be one of the most telling signifiers of adulthood, and while we believe there’s no one true definition of “making it,” it’s still a completely legit goal, if owning a home is important to you. Buying a home is not something that is in the cards for many people, but it’s also top of mind for many others. Be sure to read on for more on the great benefits of home ownership from Earn, Spend, Live, and check out our primer on buying a home here.

If you’re in the right place for it, financially, buying a home is one of the most financially-responsible things you can do as a young person. Many young Americans want to become homeowners, and it’s a wise investment.

Unfortunately, despite the benefits, many people are unaware they can even afford to purchase a home when they are still fresh out of school, or just beginning their life as an adult. If you are considering building or buying a home at a young age, there are many reasons you should go for it.

1. Investing in Your Future

Buying a home is an investment in your financial future. A house is one of the most valuable things you’ll ever own. In most cases, real estate increases in value over time. It is possible for the market to change and the value of your home to decrease, but that rarely lasts long when you make a wise investment in the home you choose to purchase.

Buying a home at a young age allows you to invest in your future by providing you something you can turn around and sell when you’re ready to move on, which can provide you with a down payment on a larger home later (if that’s something you want for yourself).

2. Build Your Credit

If you’re buying a home at a young age, you’re already working with credit. Obtaining a loan with a financial institution or a direct lender at a young age is only going to make your credit history look more impressive to future lenders.

If you’re just starting out, you probably have a car loan, a credit card, or an installment loan you’ve been working with. A home loan that you pay back consistently and on time can help your credit score rise significantly, which can help you afford a much larger home in the future.

3. Learn Better Spending Habits

Perhaps it sounds a bit cliché, but you’ll learn quickly to become more responsible when you buy a home at a young age. While other people your age might fall into a lifestyle inflation trap and start spending their money frivolously, you’ll be paying a mortgage. You’re learning how to afford to pay for a home and utilities, how to upkeep and maintain a home, and perhaps a bigger responsibility than you’ve experienced so far. The money you put toward your own home isn’t spent mindlessly; it’s going back into your pocket in the future.

Buying a home at a young age changes your decision-making process. As a homeowner, you’re more likely to turn down irresponsible choices, because you have to put money away for your mortgage. It’s good for your savings account, and it’s a decision you won’t regret having made when you’re older.

4. Experience Tax Benefits

Perhaps you’re not entirely aware of how much buying a home benefits you in terms of your taxes, but it’s significant. Homeowners get tax credits you can use to lower your tax liability. This means you owe the federal government less money each year during tax time, and you are more likely to receive a tax refund than you are if you don’t have the ability to itemize your deductions for a higher rate of return.

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Homeownership is not for everyone, but it’s one great way to invest in your future. Think of it in terms of renting versus buying. When you rent, you give money to someone else to put in their pocket and use for their own future. You never get that money back or reap any benefits from it. When you purchase a home, you spend a lot of money up front — but as the years go on and your home increases in value, you’ll see that money and much more back.

Mia Morales is a loving wife and mother of twins from Colorado. She is a self-described “DIY addict,” and loves to decorate her house and office with her creations. When she’s not writing, you can find her with a glass of mint lemon water and a child on each hip. Who says moms aren’t superheroes?

Image via Unsplash

  • It’s been quite in vogue recently for various media outlets to poo-poo home ownership in favor of renting, and I just don’t get it. The cynic in me wants to say that they’re just pandering to the Mass Millennial demographic that won’t be in a position to purchase a home for a very long time.

    The rent-vs-own analysis really needs to be done on a locale-by-locale basis, not using national data. It’s not right for a media outlet to headline, “Renting is a smarter financial decision than owning!” based on data from all 50 states and then proclaim it as gospel. People make major life decisions based on that kind of stuff without realizing that what may be true in the average is not necessarily true in their backyard.

    Sure, home ownership over the long haul may not be such a slam dunk in less desirable parts of the country, but let’s face it. I’m in the Los Angeles area, which is an extremely desirable place to live, and apart from some unprecedented catastrophe, it will continue to be. This desirability will cause both rental rates and home prices to increase substantially over the long run. In such a climate, would one rather be a renter or an owner? The answer is simple.

    And if your family is small (like ours), you can turn your house into a money-making asset by renting out space. We rent out a room here in the L.A. suburbs to a young woman from church. She pays us $850/month, which comes out to over $10,000 a year. Over 10 years, that’s over $100,000 of easy money! You’d be hard-pressed to find a landlord/lady willing to let you rent out a room in the house you rent from him/her.

    Another beautiful thing about real estate is the ability to leverage. My first property was a 4-unit using FHA 3.5%-down financing here in the Santa Clarita Valley. I lived in one unit and rented out the other three. I was single at the time, so it was a no-brainer. Why? Because of leverage. I put a hair over $15,000 down for 4 units an hour away from Downtown Los Angeles.

    And because I only put 3.5% down, I had a decent chunk of money left over (+ cash flow from the tenants) to put into “real” real estate in the form of two private placements — a beachside development deal in Newport Beach + a buy, rehab, retenant, refi apartment syndication in Arizona — the returns on which have blown the stock market out of the matter.

    The FHA fourplex strategy really is a no-brainer for single Millennials. If one does nothing else in real estate, they will have succeeded by getting into a fourplex as a young man or woman with only 3.5% down.

    Assuming the rents cover their expenses, in 30 years when they’re in their 50s and the mortgage is paid off, and they’ve done the smart thing by raising the rents over the years, they will be sitting on a million-dollar asset that cash flows thousands of dollars per month at the cost of a measly $15k or so out-of-pocket when they were 20-something.

    I can’t think of any better way for young people with limited resources to prepare for their future so early on in life with so little cash out-of-pocket.

    If I had listened to all the noise and rented all those years rather than owned, my net worth would honestly be at least $50k less than it is today, and that’s not even including the appreciation on the property.

  • Wolf

    Now someone give a scientist a contract for more than two years, so I know I can buy a home and don’t have to resell it next year because my next job is 500km away.

  • Violaine

    I think we all know the benefits… It’s not because I am not aware of them that I am not buying…

  • Summer

    I know this article is well-intentioned, but things like “build credit history” and “learn better spending habits” are very elementary financial concepts that one should (at least partially) have a handle on BEFORE buying a house. No one should be purchasing real estate to build their credit. No one should be buying a house in order to cure their online shopping and happy hour habits.

    Owning a house is expensive and often very stressful. I know I’ve said this before in similar comments, but I swear I’m going to write something for TFD about homeownership and how important it is that people do it because they genuinely want to and because the time is right for them and their finances; not just because someone’s parents and the internet say it’s a “good investment.”

    • Agreed. I own a house – overrated. Unless you are ready and willing to spend money on maintenance please don’t do it. I own a less than 10 year old house and having $5,000 saved in maintenance money is the only way I can sleep at night peacefully. Sh*t happens and sh*t will happen and getting a home equity line of credit for a new AC sounds terrible. Better to be a ‘wasteful’ renter than stress out over repairs which will lead you to use some cheap handyman that will leave you with a bigger mess. I have no reasonable tax benefits at this point.

  • I’m 25 and just bought my first home (signing the final paperwork TODAY!) and am excited about a few things:

    1) I’m able to build equity. I know this is cliché, but it’ll be so good for me in the long run to have ownership of this home, instead of continuing to pay for the chance to live somewhere. I’m hesitant to include it in my net worth though, because it’s not something I ever intend to sell… For me, the equity is a win because it’s security that, long-term, I’ll have a place to live. Bonus that I happen to love it.

    2) I’m lowering my monthly housing costs. Rent here in Los Angeles is pretty much insane, and it’s gotten to a point where, if you choose the right home and can afford the costs of buying with 10-20% down, the monthly payments you’re making for housing can be reduced significantly.

    3) On top of lowering my monthly costs, I get to bring in extra cash in the form of rent, thanks to my two (otherwise unoccupied) bedrooms. I feel just a bit more comfortable not having to rely on only my paycheck in order to make ends meet.

    4) Those tax benefits. I’ll be honest, I haven’t looked into them enough quite yet, but I’m hoping they’ll help. It hurts to fork over a sizable chunk of my income year over year.

    That said, it took a decent enough credit score and long-term savings to even be able to purchase in the first place. The process of buying brought my credit score down (marginally, but still). I wouldn’t consider 2 and 3 benefits of home ownership, but rather steps that need to be taken on the way there.

    Thanks for the article!

    • I’m so happy I saw your comment! I also live in LA and have been debating whether it was worth it to buy or if it is a place where renting is more beneficial. Glad to see someone my age doing it!

  • Samantha D

    I bought my house last year, at 29, and I feel like it takes a lot more thought than what’s presented in the article. A few things that surprised me include:
    1. you can get a house for a low down payment, but closing costs are NO JOKE!!! I put down 3% on my house through a young homebuyers program thing, and that 3% was a small percentage of the cash I had to shell out outfront. It was not pretty, and my estimate was much less than what it actually ended up being. I probably spent twice my downpayment on closing costs alone.
    2. Sellers assist is a thing that can help you with your closing costs and upfront fees, but you still need a bunch of cash.
    3. My monthly payment, (mortgage, interest, insurance, and pmi) is way lower than my former rental price. This is one of the reasons why it was the right decision for me. However, that is completely variable depending on where you live.
    4. You will spend a ton of money on house stuff the first year, even if nothing breaks or goes wrong. Patio furniture, a snow shovel, lawn mower, gardening stuff, a ladder… it sneaks up on you.
    5. Due to the closing costs and stuff, I’ve read that you should bank on being in your house for 5 years in order to make it worth your while. A lot of people can’t do that and that’s ok! You’re not less of an adult, and guess what, you can take that awesome job across the country that I can’t!
    6. Your credit should already be good or great before you buy a house. You want the best interest rate possible if you want to keep your monthly payment down.
    7. Tax benefits- not so exciting or nearly as much as I hoped!

    This is probably unnecessary for everyone reading but these are the things that I wish I knew before buying a house. As some people said below, you shouldn’t buy a house because it’s a good investment, you should buy one because you really want to. For me, I love my 100 year old twin’s character, having a small yard, and knowing that as time goes on, my monthly payment won’t go up each year. There are also wonderful, money-smart reasons to rent for your entire life.

    • Summer

      Closing costs really are a killer, and rarely does anyone talk about up-front costs beyond the down payment. Unless the sellers have agreed to cover your closing costs IN FULL, you better have a few thousand on hand above and beyond everything else.