Homebuying isn't for the faint of heart; it takes money, time and energy to find, purchase and maintain your own home. However, you have a lot to gain by becoming a homeowner at the age of 18, which is generally the minimum age you can enter into a legally binding real estate contract. Property appreciation and pride of ownership are just some benefits. But buying your first home at a young age can present challenges, especially when you need mortgage financing. Unless you inherit or receive a large enough sum to buy a home in cash, you need preparation and the right resources to make the leap to homeownership early in life.
Tackle the Funding First
Buying a home requires funds that many adults take years to gather. Most mortgages require certain amounts for a down payment:
- At least 3 percent for a conventional mortgage.
- At least 3.5 percent for a Federal Housing Administration loan insured by the government.
- Possibly no down payment if you're in the military and qualify for a Veterans Affairs loan.
You might be eligible for first-time homebuyer assistance programs. Your state or local housing agency might offer financing with a lower down payment or no down payment requirement, or may offer down-payment help in the form of a grant or low-interest loan.
Expect to pay 2 percent to 5 percent of the purchase price for closing costs, in addition to the down payment. FHA loans, some conventional loans and the VA also allow you to receive gift funds from family to cover these expenses.
Finding the Financing
Even with sufficient cash on hand, you may have a particularly difficult time qualifying for a mortgage on your own if you have a limited employment and tax history.
You may be on the cusp of beginning a career, be a full- or part-time student or otherwise lack sufficient income and employment history. Lenders require an income history for the past two years -- since you were 16. Lenders require proof of stable employment and income with no gaps in employment. If you have changed jobs over this time span, the jobs should all be within the same line of work to show consistency.
You must also provide the lender with tax returns. However, if you've never filed taxes or only have one year of tax returns, you may need a co-borrower or co-signer to buy the home with you. A co-borrower may or may not have to occupy the home with you; a co-signer does not need to live in the home. Their income and good credit supplements yours, helping you qualify for the mortgage.
If you must get a mortgage on your own, find a lender that accepts only one year of tax returns, which may require a higher down payment. You could also look for a loan from a private investor, such as a hard money lender, which requires at least 30 percent down and offers shorter repayment periods and higher interest rates.
Team Up With the Right Representatives
Most home purchases involve a real estate broker who represents the seller, the buyer, or both, in the sale of a home. Choose a real estate agent who connects you with the right resources, such as knowledgeable mortgage lenders and home inspectors. A good real estate agent understands your specific needs as an 18-year-old buying a first home. An agent finds you the home that meets your lifestyle and budget needs, negotiates contract terms and walks you through the escrow and closing process.