How to Prepare Teens for Homeownership
While I know you may think it’s not the time to prepare teens for homeownership, it is! The components needed to prepare for homeownership in the future, like credit and savings, are important life skills for teens to learn.
How to Prepare Teens for Homeownership
Many of us know that buying a first home is a stressful but important milestone in adulthood.
There are different steps that must be completed before buying a home, and financial literacy is critical to understanding them. When it comes to preparing your children to take these steps, you can never start educating them too early.
Thankfully, there are resources available that can be incorporated into lesson plans and/or general conversations with your teens to get them started on the right track!
Start Early with Financial Literacy
It is NEVER TO EARLY to start teaching your kids about money!
Click on the image above to get loads of resources for teaching younger kids about money. Everything from counting to saving!
The Importance of Credit
Most adults know that having a good credit score makes getting a home much easier.
In today’s world, many people will check your credit score, including loan officers, credit card companies, landlords and even prospective employers.
According to CNBC, a good FICO credit score is within the range of 670-739. There are many factors that go into your credit score: payment history, amount owed, length of credit history, how often you apply for new credit and credit mix (revolving credit versus installment loans).
It’s important that your teen understands the importance of good credit from an early age, as a poor score can impact their ability to complete many “milestones” of adulthood. Things like missed payments, accounts sent to collections and bankruptcies can stay on a credit report for up to seven years. So mistakes made as a teenager can affect your child when they get older and decide to buy their own car or home.
This means that teaching your teen how to use credit responsibly is of utmost importance. Consider teaching your child how to access and understand their credit report and how things such as credit cards and loans work.
Especially for older teens, opening a secured credit card is a good way for them to build credit history without the responsibility of a large credit line. You can also add a teenager as an authorized user, which allows them to build a credit history (you don’t have to give them access to the card for them to be an authorized user).
Build a Savings Account
Of course, building a healthy savings account is beneficial for several reasons. One of those reasons is the ability to pay a down payment on a property. Generally, lenders like to see a down payment of 20%, or the borrower will be subject to pay private mortgage insurance (PMI). Some loans, like the FHA program, will allow prospective homebuyers to get away with a 3.5% down payment, as well as requiring a lower credit score to get approved.
However, especially in high-priced markets, 3.5% still amounts to thousands of dollars. This doesn’t include the thousands of dollars most borrowers pay in closing costs, as well as furnishing and upkeep on a new home. Of course, even when buying a home, it’s fiscally responsible to have at least three months of savings in your account to be prepared for unexpected events.
This means it’s important for teens to start saving up now if they want to buy a home in their early-to-mid 20s.
If possible, consider contributing to a savings account for your child. Relatives and family friends can also pitch in if willing. Encourage your teen to find part-time work and put a little bit of money into a savings account each paycheck. Especially if the money is deposited into a high-interest savings account, by the time your teen is ready to buy a home, the amount accumulated should be quite a bit.
Explain the Process
Although the teenagers of today will most likely not be buying homes for years, it’s still important for them to understand the process.
Although states vary in their specific requirements, most areas have the same general process.
For example, steps such as:
- getting preapproved
- finding the best lender and real estate agent
- how to be prepared for closing
Teaching your child about the homebuying process will allow them to be more prepared for when the time comes to purchase their own home. It also shows them why they need to be concerned about things like a savings account and credit score, even though it may not affect their life now.
Possible Career Path
As a side note, this also presents the opportunity to teach your child about possible career paths.
Many people are involved in the homebuying process. This includes:
- real estate agents
- home inspectors
- title agents
- and more!
Many of these careers can offer stable, high paying employment. Ask your teen if there’s any role that sounds interesting to him/her, and encourage them to look up employment statistics, training and opportunities for that profession.
Household Chores and Upkeep
Buying a property requires a lot of financial planning and know-how. However, the work doesn’t stop once the closing forms are signed.
Significant upkeep and possible renovation is required for owning a home, even if the property is move-in ready. This includes cleaning, basic repairs and even knowing when to call a professional.
To help teach your teen the skills needed for homeownership, consider assigning them chores around the house. This will help them not only with homeownership, but college and apartment living as well.
Also, having your teen help out with home repairs is a great way to help them learn the skills needed to take care of a house. If this isn’t possible, ask if neighbors or relatives would be willing to let them help out with home maintenance.
As a last resort, teach your child what responsibilities a landlord is responsible for in your living space. YouTube videos can help teach them the basics of fixing those issues, or you can ask your landlord if they are willing to let your teen see firsthand what they need to repair or replace.
Be sure to check out this Life Skills as High School Electives course as it covers many of the skills needed not only as a basis for homebuying but for life outside your home in general!
Buying a home is still considered part of the “American dream.” However, getting there takes years of planning, saving and making responsible choices. It’s never too early to discuss how financial literacy can pay off, but it’s especially important for teenagers. Talking to your child about this can help them prepare to make this dream a reality.