No debt, but no credit. I want a house.

[michael20]

Hello. I'm 20 years old, I work as a roofer making a measly $10/hour. I have no credit history, no debt, not a lot of money in the bank, and the only asset I have is my average, daily driver car. I would like to buy a house, even if it isn't particularly "nice", as renting feels like I'm throwing my money away. What are my options? Should I focus on building credit? Is it highly unlikely that I will be able to find a lender who will give me a loan? I've always paid all of my bills on time and I'm very financially responsible.
Basically, what should I focus on right now, that will get me into my own home as soon as possible?
Many, many thanks to anyone who has any advice.

[snafu]

Welcome to SA. You've asked a major question but given very little information. How long have you been working? What is your annual salary, gross and net? How many hours do you work per week? Do you have layoffs due to weather? What opportunities for a better paying job? Are you willing to take on a 2nd, part time job like working in a restaurant, delivering pizza, dog walking, cleaning staff in a hospital?

What are your expenses? Rent, utilities,internet cell phone, cable, car payment, insurance, operation, maintenance, food and?
How much would it cost to buy the house you've described?

I'm not sure you understand that paying rent is not 'throwing your money away.' You are putting a roof over your head and it likely has a fridge, stove and possibly other appliances. If something breaks the landlord is called to fix. He pays taxes and maintenance.

I can tell you from experience that buying a house costs an endless amount of money beyond the purchase price. Worse yet, all the responsibility for absolutely everything is paid by owner. The list changes but the work never stops. The cost of tradesmen makes your head spin but you are paying for a skill set. The price you pay for the house is only the 1st factor, it comes with a mortgage [loan] that charges interest. The lower your credit score, the higher the interest. Interest can easily double the cost of the house ver 30 years of payment. 3rd you must carry insurance on the house to protect the lender. If you cannot save 20% of the value of the house as a downpayment, you must also buy ridiculously expensive mortgage insurance to protect the lender.

The municipality where you live charges taxes for both the property, the actual land and the house/structure based on a formula that includes size, number of rooms, materials used like brick or vinyl siding for example. The sums paid every month for interest and taxes go on as long as you own the property. Way past 30 years of the mortgage - endless.


For the 1st 10 years or so of homeownership, hardly any of the sums you've paid go to reducing the huge mortgage, it's not like a car loan, they put nearly everything to interest. Only when you're half way - about year 15 do you feel your money is paying of f the mortgage debt. Meanwhile the place needs painting every 5 years or so, the floors need work, the appliances need to be replaced, the grass needs care, the water bill doubles, taxes increase every June, and in my experience, I come home from work to change clothes and do a different type of work because the tape is leaking, the toilet jams, the grass needs to be mowed, the weeds need to be pulled and the flowers need to be fertiized.

Sorry this is so long...better quit

[Fishindude77]

I would not recommend that you consider buying a house at your age and income level. Glad you are working, and no offense, but $10/hr isn't much money to live on, let alone buy and maintain a home.
Your focus should be on securing better employment or improving your position where you are at. Something that pays better and has some benefits like health insurance and a retirement package. Meanwhile rent and live frugally, get a roommate or two to share expenses.

If you want to get started building credit, get a real low value ($1000 max) credit card and start using it for things like your gas purchases, remaining disciplined to pay it off each month.

This is a good place to learn about finances. Good luck !

[disneysteve]

1. Renting is not throwing money away.
2. Home ownership is not for everyone.
3. The time to buy a home is when your life is stable, you anticipate being in the same location long-term, and you are financially ready to buy a home.
4. You need to have a 6-month emergency fund saved.
5. You need to have a 20% down payment.
6. You need to buy a home with a price not exceeding 2.5-3 times your annual income so that the monthly payment (PITI) doesn't exceed 28% of your income.

From what little you've posted, it doesn't sound like you meet any of the criteria to consider buying a home at this point.

[autoxer]

You should focus on building credit and saving money. You can build good credit history without paying any interest, just by using a credit card and paying it off completely at the end of the month. If you are getting your first card, be very careful about making sure you have enough cash to pay off the balance before you charge anything.

Focus on saving. Spend less than you earn and move the extra money to a savings account, where it is just a little bit harder to access, to fend off temptations.

Read about the costs of home ownership and realize that buying a house before you are prepared is like throwing away more money than renting.

[wincrasher]

All the advice above is good. But don't get scared off. It can be alot of work to properly maintain a home, but since you are in the building trades, you probably have the skills and energy to do it very well and keep the expense down. I'd say on your income, you can't afford much of a house - maybe something in the $20-$40k range with owner financing. That will most likely be in a terrible neighborhood and the rate and terms may also be bad for you. They say some things are worth waiting for - buying a house is certainly one of those.

You'll need to save a good bit of money - 20% down is the traditional way and the best rates. You could go the FHA way with 3% down, but there are downsides to that too, which you can research on this site. The no-money down opportunities are few and very far between, if not impossible. So keep saving, and looking for something you can afford down the road. The best advice I can give you is to not over-buy because something looks like a good deal. Find a home that is the right size for you (small), looks to be in an up and coming area, or is in an area that will hold it's value. A fixer-upper should be something to consider, and probably your most likely opportunity. Buying a cheap house in a terrible neighborhood, while affordable, could be a awful investment.

I'd say that until you are ready to buy, instead of renting an apartment by yourself (and all the expenses that go with it), that you consider renting a room with somebody, or even sharing an apartment with somebody, to minimize your expenses and enable you to save more money. In fact, you probably know people who'd like a room-mate.

Key at your age is protecting and building your credit rating. Don't expose yourself to electric bills, cable bills, and rents, that can go unpaid and damage your credit. Get those things in a room-mate's name if you can manage it. It's my opinion, that at your age, the risk to damaging your credit rating from these things is far greater than the potential of building credit rating with them.

The best way to build your credit is with the responsible use of a credit card. There are lots of threads on this forum on how to do that properly. If you are ready for it, it's the fastest and most effective way to build your credit score.

Good luck!