Give the kids a real gift this year: Tell them how to buy a home

Just 100 years ago, many people didn’t take mortgages. They simply saved for a patch of land, dug a basement, and put a roof on it. Then they lived there until they could afford to build the first floor.

Today, basement houses are no longer in use. But owning a home is a fantastic investment for financial security and it has the advantage of making you happy at the same time. This is a message that parents should pass along to their 20-something kids who are at the age to develop the right habits for financial security that will lead to homeownership in years to come.

The rules of financial security really haven’t ever changed and the same is true of smart home buying: Save money, pay your bills, buy what you can afford. That simple formula begun in the 20s will translate into a home in your 30s and financial security in your 60s.

Don’t assume the steps to buying a home is obvious to kids. It isn’t. Kids in their 20s may not even realize that can buy a home or even that they might want one.

Advise the kids to get their credit in order. These days a credit score over 620 is a must to buy a home and the higher, the better. To create a good credit rating, they must pay their bills 100 percent on time over a number of years. Stress to young people that they must successfully manage credit by keeping their utilization low–no more than 30 percent. They might take out a secured credit card at first. Kids in their 20s might try for a car loan. This is a good step, if the car loan is modest and they can make payments perfectly.

At the same time, they should begin to save some money to make a future down payment. Assuming their incomes haven’t matured, they might not attempt big deposits at first, but over time, savings will grow.

The down payment, combined with a good credit rating, will give them an affordable interest rate and start them off with a little equity in their new home.