There are plenty of things in our lives life that we would love to have another chance at as we get older. One of the most common mistakes people make in their youth is not putting enough focus on their finances, particularly real estate. But, with the right home purchase in your 20’s you can set yourself up financially for years to come. Today, many millennial’s are opting to rent in favor of buying, but that doesn’t have to be your only option.
There are a handful of loan programs that can get you into your first home much easier than you may realize. The most common loan program is an FHA loan. This is a government backed loan that has reduced guidelines and requirements primarily targeting first time buyers. Instead of throwing money away on rent, with an FHA loan you can build a portfolio that will snowball in the future. Here are four reasons to consider utilizing an FHA loan.
Reduced Down Payment.There are a few significant obstacles on the path to homeownership. The most difficult is often the down payment. Few borrowers have 5, 10, or even 20% that is required to meet most program guidelines. With an FHA loan you only need 3.5% of the purchase price to get into the property. What’s more is that you can also get a credit from the seller or the lender to further reduce the money you need to close. There are other programs that offer 3% down payment, but as you will see none match the guidelines and requirements as an FHA loan.
Gift Funds Allowed. One of the true benefits of an FHA loan is that the down payment and closing cost money can come from a variety of sources. You may not have money to close, but you don’t necessarily need to. If you have a family member that is willing to gift you the funds you don’t need any of your own capital. There is no minimum borrower contribution to get an FHA loan. You may only have a few thousand dollars of your own money, but it doesn’t restrict you from buying.
One to Four Units. Here is where an FHA loan can truly accelerate your financial situation. An FHA loan allows for any property one to four units. Let’s say you opt for a two-family home and decide to live in one unit and rent the other for a few years. During this time you will collect rent on the second unit offsetting the total you pay towards your mortgage. When you are ready to move on you can sell and use the equity towards your next house or retain the property and collect rent from two units. With two rents you may realize residual cash flow which you can use any way you like. The ability to own a multifamily property right out of the gate gives you a handful of positive options in the short and long term.
Increased Debt to Income Ratios.Credit score, down payment and debt to income are the three main factors of mortgage approval. You don’t need to make a lot of money if your liabilities are low. Where most loan programs have a debt to income ratio of 45% an FHA loan may go as high as 55%. Simply put this means your total monthly liabilities can be up to 55% of your gross monthly income. This alone is a great reason to consider an FHA loan.
Buying real estate in your 20’s is one of the best financial decisions you can make. Renting may provide a short-term answer but there are numerous loan programs that make homeownership not the obstacle it once was. If you are thinking about buying a home, consider the power of an FHA loan.