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Buying and Financing Your First Home: A Guide for Young People

By: Andy West

Many young people think that owning their own home is out of their reach, either financially or just practically, but they couldn't be more wrong. Buying a home is a great investment for just about anyone, but especially for young people.

Can I afford to buy my own home? One of the biggest concerns young people have about buying their own home is whether they can afford it. Part of this is due to old-fashioned ideas that people still accept as truth. For instance, most young people assume that you can't buy a home until you're older because you have to save up the money for a down payment. This simply isn't true anymore. Most lenders offer 80/20 loans so that buyers can finance the entire cost of a house without having to pay for expensive mortgage insurance.

Why buy instead of renting? Another reason many young people hesitate is because they think they can't afford the monthly payment. In reality, though, most people's monthly mortgage payment is only slightly more than the rent for a comparable house. The main difference is that when you pay rent, you never see any of that money again, but when you pay on a mortgage, you are effectively making payments on an investment that you can sell and recoup later on.

Should I plan to trade up later on? One of the reasons why buying your first home when you're young is such a good investment, is that you can easily sell the home and use the equity to buy a bigger home when you are ready for more space. As a young person, perhaps in your 20s or early 30s and just a few years into your career, you don't require much space -- a smaller house will usually do very nicely. By the time you are ready to start a family, your house will have increased in value. You will have been making payments on the mortgage for several years, which will make it easier to trade up and get a bigger house.

Won't I receive a lot of tax breaks? Owning your own home is not only a good investment, but also makes good sense for tax reasons, too. The interest that you pay on your home is deductible on your tax returns. Basically, you can use it to lower your net income, which in turn lowers your tax liability. This means that either you get a bigger tax return at the end of the year, or (if you plan ahead) you can have less withheld from each paycheck.

Once you are convinced that it's a good idea to buy your first home when you're young, you only need to find the best deal for financing it.

Traditionally, prospective homebuyers simply went to their bank and took out a loan there. Today, there are so many options and so many different deals available that you are actually better off shopping around.

In order to find the best possible deal, you need to get quotes from many different banks and mortgage brokers. Many people assume that their mortgage broker is trying to find them the best possible deal, but brokers are often swayed by the commission lenders offer them, and so are not necessarily acting in your best interests. Your best bet is therefore to shop around and compare interest rates, fees, and other expenses between the different deals you are offered.

More and more young people are buying their first homes these days. It just makes sense: It's a good investment, and more financing options puts homeownership within reach of more young people than was traditionally possible. If you decide to buy your first home at a young age, you won't be disappointed; the benefits far outweigh the costs.

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