You started your YouTube channel six years ago when you were 12 years old and now it’s bringing in incredible money every month.
You’ve always loved making jewelry and now the Etsy shop you opened in high school has grown into a profitable business.
Your parents just won an insane amount of money in the lottery and each child is getting their own $500k.
And you’re only 18 years old!
Are any of these scenarios similar to yours? Are you earning a ton of money through a hobby that turned profitable, a business, or have you unexpectedly received a boatload – and you’re under 21 years old?
You might be dreaming now of buying your own home – and wondering if it’s even possible. And if it’s a smart idea.
First in this article, we’ll tell you at what age you can legally purchase your own home depending on the state you live in. The chart is right below.
Then we’ll get into all the pros and cons of buying your own home as a young adult. So, you’ll be able to figure out if homeownership right now is the right thing to do – or if you should wait a while.
Find Out Below If You Are of Legal Age in Your State to Purchase a Home
| State | What Age Can You Legally Purchase a Home |
|---|---|
| 47 States | 18 years old |
| Washington DC | 18 years old |
| Alabama | 19 years old |
| Nebraska | 19 years old |
| Mississippi | 21 years old |
In the US, 47 states and Washington DC allow someone who is 18 years old to legally purchase their own home. It’s called ‘the age of majority’ – when a child becomes an adult in the eyes of the law. A person at the age of majority can sign legal agreements and complete real estate transactions. The three states with higher ages of majority are: Alabama and Nebraska at age 19; and Mississippi at age 21.
If you haven’t reached the age of majority yet, you can purchase a home as a minor, as long as your parents or someone of legal age signs all the legal documents.
If you want to learn more about the age of majority, here is an article at policygenius.com that explains more about it.
The age of majority includes buying a home to either live in yourself or as an investment property – one you plan to use as a source of income. In this article, we’re not going to get into the details of owning an investment property. We’ll dive into that in an upcoming article.
Now that you know you legally can buy your own home at age 18 in most states, let’s talk about whether you even should or not.
Should You Buy Your Own Home at a Young Age?
Let’s cut right to the chase here.
In our opinion, a person under 21 years old should not purchase their own home – unless their financial circumstances are extremely unique. To be more specific, a person at this age should only buy a home if they have enough money to pay for the entire home or close to the full amount.
That being said – this is the world of entrepreneurship, stock market investing, content creation, online marketing, drop shipping, Etsy, YouTube, Tik Tok and you name it for financial opportunities.
Sure, something like Tik Tok is too new to tell if it’s just a fad that won’t last long. But, there are plenty on that list (and not included on that list) that are smart, sustainable income sources – if done right and done well.
Let’s face it – it’s a whole new world out there for opportunities that not only satisfy our interests and passions, but can bring in good money. As many people choose to do, these avenues are great part-time gigs -especially while someone is in college or working full-time.
And many Gen Zs are taking to these new gigs like fish to water. Their bank accounts are proving it.
In fact, some financial experts are beginning to consider Gen Zs as actually becoming pretty independent and savvy when it comes to wealth.
As a generation, they are writing their own money rules – very different from older generations, according to Mallika Mitra at money.com.
“They’re working really hard to build wealth in new ways that feel ultra necessary for these post-pandemic times,” Mitra said.
You can read the entire article: Gen Z Is Rewriting the Rules for Personal Finance in Real Time. That’s Good, Right? here.
If you’re curious about the ages of Gen Z and other generations, here’s a chart:
| Generation | Birth Years | Ages |
|---|---|---|
| Gen Z | 1997 – 2012 | 10 – 25 |
| Millennials | 1981 – 1996 | 26 – 41 |
| Gen X | 1965 – 1980 | 42 – 57 |
| Younger Baby Boomers (missed being drafted into war) | 1955 – 1964 | 58 – 67 |
| Older Baby Boomers | 1946 – 1954 | 68 – 76 |
Getting back to YouTube millionaires, you might be thinking that they just got lucky.
That’s because we often hear the unbelievable stories of mega YouTube stars like MrBeast. His monthly salary in 2021 was reportedly $3 million dollars.
But, there are thousands of lesser known and virtually unknown YouTubers and online marketers who are making a good, steady full-time income. In fact, with billions of viewers everyday on the platform, a Youtuber could have a miniscule piece of that pie and still make incredible money.
And when you delve into the work habits, focus, constant learning, and investing in themselves and their businesses of the successful ones, you realize it’s way more than luck.
Although some YouTubers make it look like all fun, glamour, and games – the ones who are really making out are taking this new business model very seriously.
Is YouTube here to stay? Absolutely, according to some experts. You can read an article here in medium.com all about the staying power of YouTube as a viable source of income for those people who love this business model.
“Gone are the days of waiting until someday a company offers you a 401(k). This extremely online generation learned to manipulate Instagram and YouTube algorithms to get side gigs and start their own businesses.” Mitra at money.com said.
We want to be clear that we are not promoting someone drop out of college to become a Tik Tik star. Or that good old fashioned jobs at the local grocery store or landscaping company aren’t something to be proud of.
Hard work, education, saving, and spending below your means will never go out of style.
What we are saying is that owning a home at 18 years old is an outrageous goal that requires an outrageous amount of money.
Here are some reasons why buying a house at this age, without unusual financial circumstances, wouldn’t be wise or even possible.
First of all, an 18 year old under normal financial circumstances wouldn’t get approved for a mortgage. You just don’t have the work history; credit history; regular income; and other requirements needed to get a mortgage.
Basic Requirements for Getting a Mortgage
Keep in mind that just because you are 18 years old, that doesn’t disqualify you from getting a mortgage. Mortgages are not based on age.
1. Income
Banks and lenders want to know what a person’s income is every month. They want to make sure it’s high enough to cover their mortgage payment, as well as all their other bills.
They’ll check income by looking at W–2 forms or pay stubs from a person’s job. If someone is self–employed, they’ll look at things like W-9 forms, tax forms, and/or bank statements that can prove income.
An important part of income lenders look at is consistency. This is one of the big reasons why 18 year old’s might not qualify for mortgages. Lenders usually won’t consider a person’s income if it hasn’t been consistent for at least two years.
Besides a person’s salary, lenders also consider these types of income:
- Military benefits
- Part-time income
- Alimony or child support payments
- Income from investment accounts
- Social Security payments
2. Credit Score
A person’s credit score gives lenders an idea as to whether or not they’ll be a good borrower. A low credit score is a risk to a lender. It means that person might have made late payments on their credit cards or car payments, for example – and that same thing might happen with their mortgage payments.
There’s a lot of factors that make up your credit score. We have a great article here you can check out. It’s titled: How Can I Buy My First Home if I Have Bad Credit?
Based on your credit score, you could get rejected for a specific type of mortgage. Your credit score also helps lenders determine what your interest rate will be. The higher the credit score = the better the interest rate.
As you’ll learn in a post coming soon all about mortgages, there are different mortgages available to homebuyers.
Here is a table that shows the minimum credit score requirements for four types of mortgages available:
| Minimum Credit Score | Loan Type |
|---|---|
| 580 | FHA |
| 580 | VA |
| 620 | Conventional |
| 640 | USDA |
3. Savings
To get a mortgage, a person needs to make a down payment. For conventional loans, this could be around 3%. So for a $300,000 home, a person would need to put $9,000 down.
The down payment requirements are different for each type of loan that’s available. We’ll get into all the details of this in another article.
Here’s a chart that shows the basic down payment requirements by the type of loan:
| Minimum Down Payment | Loan Type | Requirement |
|---|---|---|
| 0% | USDA | Income and Geographic Requirements |
| 0% | VA | Veterans and Active-Duty Military Only |
| 3% | Conventional | PMI (private mortgage insurance) Needed |
| 3.5% | FHA | Credit Score Minimum of 580 |
| 10% | FHA | Credit Score Between 500 – 579 |
| 20% | Conventional | No PMI Needed |
As you can see above, there are some mortgages that don’t require a down payment. Such as USDA loans and VA loans.
For USDA loans, a person must meet certain income requirements and also buy a house in an area that the USDA has zoned agricultural. VA loans are only available to veterans and active-duty military.
But regardless of whether or not a down payment is required, lenders are going to want to see that a person has savings or at least assets that can be turned into cash. This is in case they run into a financial emergency. The bank wants to make sure they’ll still be able to make their monthly mortgage payments.
- Checking and savings accounts
- Certificates of deposit (CDs)
- Stocks, bonds and mutual funds
- IRAs, 401(k)s or any other retirement account
Another reason lenders need to see plenty of savings is because of closing costs. These are fees a person pays to the lender on the actual day they close on the house.
This is the day all the legal documents are signed; the house is officially recorded as theirs at the registry of deeds; and they are handed their keys and can move in.
Closing costs pay for things like: the bank’s processing fees, appraisal fees, attorney fees, and escrow fees. All things you’ll learn about as you keep reading our articles.
They are usually around 3-6% of a total mortgage. On a $300,000 mortgage, that’s around $9,000 to $18,000.
4. Debt-to-Income Ratio (DTI)
This is a simple percentage formula lenders use to measure how much debt a person has compared to their gross monthly income. The lower a person’s DTI ratio is, the more attractive they are to a lender.
You can measure your DTI by adding up your payments on any car loans, student loans, and personal loans. Also include your minimum credit card payments. Take this number and divide it by your gross monthly income. Then multiply that by 100 to turn it into a percentage. This is essentially your DTI.
Generally, to qualify for most loans, a person’s DTI ratio needs to be 50% or less.
Here is a chart that shows typical DTI ratio requirements by the type of loan:
| Loan Type | DTI Requirement |
|---|---|
| Conventional | Typically allow up to 43% DTI |
| FHA | Typically allow up to 43% DTI, 50% for Stronger Applicants |
| VA | Typically allow up to 41% DTI |
| USDA | Typically allow up to 41% DTI |
Now that we’ve covered basic mortgage requirements, let’s get back to other reasons why buying a house at 18 years old might not be a smart decision.
Reasons Not to Buy a House at a Young Age
As we stated above, you most likely wouldn’t get a mortgage at this age.
At this age, you’re most likely attending college. These are your learning years and usually not your earning years.
Not everyone chooses the college route. Nothing wrong with that. Then you’re most likely learning a trade, taking classes, training on the job, or doing some type of required learning. And your pay reflects this. You’re most likely at the bottom of the pay scale, where everyone starts out.
Another reason is because you might not stay in your area after you graduate college. Statistically, right after college is when most people move to where they can get a job in their career. This could mean you could end up moving across the state or across the country.
And the last reason we want to add is you could end up house poor for the next several years. House poor is when your monthly homeownership expenses are way too high compared to what you have coming in every month.
Basic homeownership expenses include things like monthly mortgage payments, property taxes, maintenance, utilities and insurance.
Even if you are able to get approved for a mortgage because you could put a huge amount down and you have steady income – you could end up taking on too much financial burden and risk.
Let’s talk about two unusual scenarios that might allow you to buy a house at age 18.
What if you got lucky and won the lottery? Could you even play the lottery at 21 years old or under?
We want to say right upfront here that we’re not suggesting anyone go out and start playing the lottery as a financial plan – lol! Or head to a casino and start gambling.
What If You Got a Winning Scratch Ticket in Your Christmas Stocking?
For the most part, it’s legal in most states for a person at least 18 years old to play the lottery, like Powerball and scratch tickets. Some states like Alabama and Mississippi have banded these state-run lotteries though.
Each state has different rules regarding the lottery. And to complicate matters, some states have separate laws when it comes to buying lottery tickets and then redeeming them.
Some states say a person can buy a lottery ticket at age 18, but can only redeem it at age 21. When this happens, the money has to be transferred to the winner’s family until they are of legal age.
Also keep in mind that if you were to hit it big on a scratch ticket or lottery, the government takes at least around 25% of that for taxes.
It’s still fun to dream of winning the lottery and buying your dream home. No harm in that.
What if You Inherited Enough Money to Buy Your Own Home?
Unfortunately in this scenario, it means a loved one of yours has died. You might be included in that person’s will as a beneficiary, along with other family members. Or if he or she had no will, their estate would be divided and split evenly among all of their heirs.
The executor of the estate handles this process of dividing up and distributing the person’s assets and for fulfilling their final wishes.
The process of adding up all of a person’s assets, subtracting any outstanding bills, and then distributing what’s left to the correct beneficiaries is a long, complicated one, as you can imagine.
Receiving an inheritance could take several weeks and up to several months.
Legally anyone at any age, including a child, can receive an inheritance. But, that’s not the same as being legally entitled to it.
Entitled means you can do what you want with the money or assets you were given.
In most states a person has to be at least 18 years old to be legally entitled to their inheritance. However, the person who died might have written in their will a specific age that they will allow their heir to have control of the money.
In other words, your grandfather who just passed away might have stated in his will that his grandchildren will be able to take control of their inheritance when they reach 21 years old.
Sometimes other limitations are placed on inherited money. For instance, grandpa might have stated in his will that the inheritance can only be used for college costs.
If you’ve inherited a huge amount of money or assets and are thinking of buying a house with it, the first thing you should do is hire a good, trustworthy financial advisor.
They will help you protect your newfound wealth; manage it; build it; and create a financial plan with you – including buying your own home.
So, let’s say you have the money and the ability to buy a house at age 18. Here are 5 benefits:
5 Reasons to Buy a House at a Young Age
1. Independence
If you’re the strong, independent, goal-oriented type, then buying your own home might be perfect for you.
2. Planting Roots
If you love the idea of settling into one special place you can call your very own, homeownership now might be for you.
3. Building Wealth
They say monthly mortgage payments are like forced savings. Essentially you are paying yourself every month as you build the equity in your home.
4. Appreciation
Financial experts often agree that real estate is a smart long-term investment that usually increases over time.
5. Creativity
Do you want to build a huge vegetable garden? Create a gym, home office or art studio? All things you can do when you own your own home.
10 Things To Do Before Buying a House at a Young Age
1. Build Up Your Savings
You’re going to need to build up your savings for a lot of reasons. Such as: a downpayment; closing costs; moving expenses; homeowner expenses; etc.
2. Get Out of Debt
Being in debt just weighs you down. Chip away slowly and steadily at all your debt. Luckily at a young age, you might not have any debt or very little, aside from student loans.
3. Build up Good Credit
Along the same lines as getting out of debt is building good credit. Use your credit cards wisely. Like using them for gas and food – and then paying them off every month.
4. Avoid Fancy Cars
This is like throwing money out the window. If you have an older car right now, use your imagination and just feel as if you’re in a new Tesla as you’re driving it. No harm in that.
And if you’re worried about what other people think of you driving an older car, work on replacing negative beliefs like these with positive empowering ones.
5. Save an Emergency Fund
If you’re wanting to get financially smart, Dave Ramsey is a great person to start following. Here is the link to his YouTube channel. One of his big rules is saving an emergency fund.
His rule of thumb is if you’re just starting out with an emergency fund, you need $1,000. But if you’re out of debt and working on a fully funded emergency fund, you’ll need to save 3–6 months of expenses.
6. Build Your Income
You might be still in college at this age. If so, then getting good grades and learning about your career is top priority right now.
But if you’re out of college and working, see what you can do to build your income. This includes things like: increasing your salary; working on the weekends; or starting a money making side business or hobby.
This always includes continuing to get better in your main career. Promotions, salary increases, and opportunities come to those who are always improving their skills.
7. Watch Your Spending
Those morning Dunkin coffees and bagels can add up over time. Same thing for the new outfit you just bought on sale. Start keeping good track of your spending and see what you can start cutting down on now that will pay off later.
8. Learn Good Financial Management
This is so easy to do these days online. Start learning from the wealthy teachers out there like Dave Ramsey. As many of us agree, we were taught complicated algebra in school, yet we often weren’t taught the basics of good financial management, like how to balance a checkbook.
You can begin learning all the skills you need to start really taking care of your money. Besides the basics, you can learn about things like types of investing, retirement accounts, the stock market, taxes, etc.
9. Emulate Successful People
What are the daily habits of the people you admire? Watch their Youtube channels, read their blogs, and listen to their podcasts. See how they do it.
Then copy them. There’s nothing wrong with copying someone’s habits. Most successful people have coaches and mentors. You can do the same virtually by learning from and emulating your heroes.
10. Keep Your Mind and Body Healthy
They say ‘health is wealth’. And that goes for your mental health as well as your physical health. Get exercise and fresh air everyday to stretch your body and clear your mind. Eat healthy food, drink plenty of water, and practice other good daily habits.
It might not seem like it, but what’s happening on the inside of your body has the most impact on what’s happening on the outside – including buying financially strong and achieving that goal of buying your first home.
Thanks for reading!
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Stay tuned for more articles on all the ins and outs of homebuying for first-time homebuyers.
If you’d like to ask me any questions, email me anytime at: paula@michaelandsullivan.com.
Or call: 774-287-5852