Times are tough financially for everyone, but even more so for members of Generation Z who are coming of age in the workforce in their early 20s.
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Those who want to buy a house find themselves in a dilemma with high property prices and mortgage interest rates. Although it seems unlikely that the average Gen Z will be able to afford a home, James, a sales representative from New Jersey, took strategic action and bought his first house at the age of 25 in 2023.
Here are the steps he took to pay off his house and his recommendations for others who want to do it.
Save the deposit
The hardest part of buying a home for James was saving the down payment. Although loans from the Federal Housing Association (FHA) and the Department of Veterans Affairs (VA) allow for a down payment significantly lower than the recommended 20 percent, those scenarios ultimately didn’t work out for James.
One of the challenges in getting a loan is that his job in sales is commission based.
“It’s difficult to demonstrate a significant income, which means you’re much more likely to want to make a larger down payment, like I did,” James said. He was able to save and put $75,000 down on a $500,000 house.
Saving money came naturally for James since his first job at the age of 15. He remembers receiving his first salary of around $121, earning a minimum wage of $7.25, setting aside $21 and investing $100 in savings.
“I started saving very, very young. Even after I graduated from college, I had a good amount of money and knew where I wanted to be in a few years,” he added.
James earns a base salary of $75,000 per year with a variable commission that puts him closer to around $135,000 per year, although this figure can fluctuate.
Financial literacy
James’ financial knowledge from a young age is due to a number of different things.
“It definitely started in my house. For as long as I can remember, I’ve seen my dad get into real estate, own a few rental properties and just create different sources of passive income,” he said. “He always (taught) me that you have to plan ahead and be prepared for everything.”
James also had some “pretty influential teachers” who recommended reading books like “A Simple Path to Wealth” by JL Collins, “Rich Dad, Poor Dad” by Robert T. Kiyosaki and Sharon Lechter, and others who helped to set up. .
Seller Financing
Although James was approved for FHA loans on two locations where he entered escrow, he said, “The transactions ended up not going through for other reasons. The one I ended up closing on, it was seller financed.
Seller financing allows the buyer to bypass the use of a bankand get the loan repayment interest rates the seller is willing to offer.
“Out of the three different locations that I was close to closing on, two of the three were going to be seller-financed or at the very least for-sale-by-owner scenarios,” James said.
Compare the prices
James hired a real estate agent and together they looked at about five or six houses a week for an entire year before finally closing on a house.
“It’s a tough market,” he said. “I mean, when I started, rates were very low, around 3% over a period of time, and we just overbid each other. They didn’t work. »
When interest rates started to rise, he became more successful and purchased his house in September 2023.
House hacking
Part of what made this purchase possible for him was purchasing a two-family home, so he could live in one and rent the other.
“My mindset was always that this was an investment property. So part of the reason I was able to get approved for things like FHA or a regular conventional loan was because I was always looking for two families (houses) that had rental income to supplement my income.” , James said.
Based on his experience, James recommended the following tips for other Gen Zers looking to buy a first home.
Start saving
“If you have cash built up, it makes things a little easier with your financing options. There were a lot of houses I wanted to jump on and it would have been a disaster if I tried to jump on them, and I’m glad the cards didn’t fold in a lot of those scenarios,” he said .
Diversify your savings
James not only put his money in a traditional savings account, he also invested heavily in exchange traded funds (AND F). Even if he has to pay capital gains taxes on profits, it can offset a large part of it by expenses linked to invest in his property.
“I was able to cross swords a little bit that way and not see as many downsides, but I also had a lot of things saved up for a basic down payment that were in high-yield savings accounts” , he explained.
James prefers a “gamified” savings company called Yottawho proposes higher yield accounts.
Find a valuable market
James grew up in New Jersey, but he has also lived in Florida and Texas. He considered each market when buying a home, but ultimately it didn’t seem like homes there would appreciate in value as quickly as they did in New Jersey.
Don’t settle for a mortgage
James strongly recommends shopping around for a mortgage. He remembers a house he almost closed on that he later realized would have been a disaster.
“I think the biggest thing is, just because you can get approved for a mortgage doesn’t mean you should take out that mortgage,” he said. “I got approved for a mortgage that probably would have completely submerged me. »
He added that if you think you can afford it, then “double and triple check it.” Ask: How much money do I have in reserve? How long can I keep my head afloat if everything goes to hell?
Choose your partners wisely
Finally, when choosing the key players who will help you buy a home, James said, “Make sure your agent, your attorney, and your brokerage all have your best interests at heart. »
He felt lucky to have people everywhere who never pressured him into buying something that didn’t make sense and who were always honest with him.
“They would tell me when a property was a bad idea and when a property was a success. Their expertise gave me a leg up on other buyers,” said James.
Buying a house depends on many factors. Having a strategic savings strategy and finding the right people to collaborate with can be effective.
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This article was originally published on GOBankingRates.com: I’m Gen Z: How I Saved Enough Money to Buy My First Home
