Financial Resource Center

Housing


Young Adults: Seek Your Own Space

by Dianne Molvig / September 19th, 2005

Do you remember when you first began fantasizing about living on your own? After years in the family nest, college dorms, and overcrowded student-ghetto apartments, it's time for the next big move. Where to? Perhaps you're struggling to find an answer. Or you feel frustrated about the gap between what you want and what you can afford at this stage of your life. Here are a few pointers to help you sort out your options.

Get a new lease on life?

Renting may be your prime prospect. But within the realm of renting, you have a range of choices, from a studio apartment of your own to a spacious house you share with roommates. It comes down to finances and personal preferences. Say your budget allows you to handle paying rent for either a studio apartment or one-fourth of a four-bedroom apartment. Would you be happier coming home after work to a tiny studio that's all yours, where you can do what you want when you want? Or do you need more living space and feel lost without a gaggle of roommates to hang with? Be honest with yourself about the sort of home life that makes you comfortable--and about what's affordable. A rule of thumb is that one week's salary should cover rent plus utilities--phone, electricity, and so on.
A credit union loan officer can answer all your home financing questions.
Investigate buying renter's insurance, as well. It's relatively inexpensive. You may think your worldly belongings are few, but you'll be surprised when you tally up the costs of everything. Deciding what you want in a home is the first step. A much bigger step is hunting for a place. Manage your expectations, advises Rebecca Knight, author of "A Car, Some Cash, and a Place to Crash: The Only Post-College Survival Guide You'll Ever Need". When responding to advertisements, "You soon learn that 'charming' means small," she writes, "and that 'sun-filled' means there's a window or two." But even the less-than-perfect place that's within your budget can become a homey, inviting environment with a little creativity and not much money. Best of all, it's yours. "For many of us," Knight says, "living on our own--out of our parents' home, away from dormitory life--is liberating. Revel in it."

Become a homeowner?

Buying a house is one of those momentous rites of passage. According to the 2000 U.S. census, nearly 37% of people younger than 30 have bought a home. Deciding if you're ready to join them requires exploring many questions.
Be honest with yourself about the sort of home life that makes you comfortable--and about what's affordable.
Do you have a good credit record? Can you afford monthly mortgage payments? In evaluating you for a loan, lenders generally prefer that no more than 40% of your gross income goes toward paying debt. That includes all your debt: home mortgage, car loan, student loans, credit cards, and so on. An online calculator can help you do the math. You'll also need a chunk of cash to cover other expenses associated with buying a home, such as mortgage closing costs (lender fees and so on) and attorney and home inspector fees. Once you own, you'll need money for home maintenance and repairs. Let's say you have a satisfying, well-paying job that allows you to afford all this. Or you have parents who are willing to be co-signers on the mortgage so you can qualify. Now other factors weigh in to your decision. Experts recommend that buying a house only makes financial sense if you plan to stay put for at least five years or so. Generally, it takes that long to recoup what you spend on closing costs, other upfront expenses, and paying an agent's commission to sell your home.
Fifty-seven percent of recent college graduates planned to move back in with their parents.
This brings up more questions: How stable is your job? Do you expect to be transferred? How likely are you to decide to move to another city in the next few years? Finally, there's the most basic question of all: Are you ready and willing to do all the things homeowners must do? Can you stay home on a Saturday afternoon to clean gutters or attend a condo association meeting, when you could be out bicycling, without feeling miserable? If not, now may not be the right time for you to buy a home.

Look homeward?

Some young adults make a U-turn--even if temporarily--to the parental nest. Nearly 18 million 18-to-34-year-olds live with their parents, according to the 2000 U.S. census. And a MonsterTrak.com survey last year found that 57% of recent college graduates planned to move back in with their parents. "What used to be seen as a social taboo has now become a commonly accepted life passage," writes Elina Furman in "Boomerang Nation: How to Survive Living with Your Parents ... the Second Time Around".
Experts say buying a house only makes financial sense if you plan to stay put for at least five years.
Many factors drive young adults back home. They may face a tight job market, or earn too little money at an entry-level job to afford rent, or need to pay off a mountain of credit card debt and student loans. Some want to save money to buy a house or start a business. Still, many young adults choke on those words, "I live with my parents." It's like admitting you're a loser. Furman advocates a different view. "The ability to make decisions based on your fiscal reality," she says, "and not some idealized picture of where you should be is what truly separates the kids from the grown-ups." Expect some adjustments--for you and your parents. And lay out the ground rules, in writing, to avoid misunderstandings. Will you pay rent? Contribute to utilities and food expenses? Get use of the family car? Come and go as you please? Set a deadline for how long you'll stay. And remain focused on your goals, whether paying off debts, saving to launch a business, or whatever you need/want to do. Be sure those goals have top priority. With extra money in your wallet, it can be tempting to indulge in spending binges: nights on the town, travel, new clothes. "Once you make the decision to return to the nest," Furman advises, "it's important to make good use of your time there. After all, isn't this relatively financially stress-free period the best time to deal with your money issues?"