1. Teaching Financial Literacy to Teens: Introduction
  2. Teaching Financial Literacy to Teens: Making Money
  3. Teaching Financial Literacy to Teens: Budgeting
  4. Teaching Financial Literacy to Teens: Credit and Debt
  5. Teaching Financial Literacy to Teens: Cars and College
  6. Teaching Financial Literacy to Teens: Account Reconciliation
  7. Teaching Financial Literacy to Teens: Investing
  8. Teaching Financial Literacy to Teens: Moving Out
  9. Teaching Financial Literacy to Teens: Conclusion

At some point, the time will come for your teen to leave the nest and find housing of their own. If your teen moves away to college, he or she might live in a dorm or share an apartment with other students (especially after freshman year). Another option: Some families buy a home or condo near school that their kids can use to save money on dorm expenses – which can be a great way to invest in a rising college town housing market.

If college isn’t in the plans, a child who's gotten a job and started into adult life may want a place of his or her own to call home. While most teens are focused on the rental market, a few may be ready to buy a home. Here are some considerations for both.

Renting

Renting instead of owning is a great option for young adults who will be living in an area temporarily (such as for college) and who aren’t ready for a mortgage. College and graduate students often rent to move out of campus housing since it offers students more privacy, a better atmosphere for studying and the option to cook their own meals. If you live off campus, you may also be able to bring your car to school, as well as sporting equipment like bicycles and kayaks.

Whether your teen is headed off to college or not, their rental budget will likely guide the search. You may find that rental rates are prohibitively high in your child's first-choice area, so it's a good idea to have several areas in mind. Other factors to consider include:

Amenities
Apartment complexes offer a variety of amenities, from fitness centers to 24-hour concierge services. In general, the more high-end the amenities, the higher the monthly rent is likely to be. Most rental communities, such as apartment complexes or townhome rental communities, have websites that describe the amenities, so it’s easy to do some comparison shopping online.

Commute
Your teen should consider what his or her daily commute to work and/or school will be. It might make financial sense to rent closer to work/school even if it costs more since they’ll be able to save on gas and time – especially in urban areas with known rush hour traffic problems.

Pets
Some rentals will allow tenants to have a pet. If so, expect to pay a "pet deposit" that will be returned if there’s no pet damage once your teen move outs, or a non-refundable "pet fee.” The fee is often used to de-flea, deodorize and shampoo the unit's flooring and/or upholstery. Tenants may also have to pay "pet rent” to cover expenses related to normal wear and tear from their pet. Watch out for breed-specific restrictions that may prevent certain breeds, such as pit bulls, from entering the property. Landlords may also limit the number of animals allowed in any one unit, and enforce weight and height limitations.

Roommates
If your teen has decided for financial or social reasons to find a roommate, care should be taken to find one who has similar housing goals: Are they interested in a quiet home life, do they hope to have lots of parties with loud music, or something in between? Regardless of lifestyle, it’s important that all roommates share common goals; otherwise, the living situation can quickly turn bad.

Students may room with classmates they already know. Or they can find roommates by word of mouth, newspapers, or by using a roommate finder app such as Roomster. They can help avoid potential trouble by asking lots of questions upfront: When are quiet hours? How will cooking and food shopping be shared? Who will be responsible for getting the rent and utility bills paid on time? Is it okay for girlfriends and boyfriends to spend the night, and, if so, how often? How will rent be divided? Who will get which bedroom? (Check out Renter’s Guide: Living with Roommates.)

Determining "exit procedures" is also essential. How much notice will roommates give one another before moving out? For how long will they continue to pay rent? Will the roommate be responsible for finding a replacement?

Addressing these questions ahead of time can create a better experience for everyone. For added peace of mind, roommates can enter into a "Roommate Agreement" that covers details such as each person's share of the rent and utilities, who gets which bedroom, how chores will be divided, how food and shopping will be handled, rules regarding guests and plans for dispute resolution. Memories can differ, so putting it in writing is really helpful. (For more, see Reasons Renting is Better Than Buying.)

Buying a Home

Most people who buy homes are well beyond their teenage years. Still, the occasional, ambitious teen may buy a home either to live in or as an investment. Regardless of age, buying a home is usually the single largest investment that a person ever makes – so most people need a mortgage to finance it. Keep in mind, people have to be at least 18 to get a mortgage since it’s a legally binding contract.

Most teens won’t be able to get a mortgage on their own because they don’t have a long-enough credit history (remember, even responsible young adults are at a disadvantage in terms of credit scores simply because of their inherently short credit history). As a parent, you can cosign on a mortgage – meaning, your name is also on the mortgage papers – which can help your child qualify for the loan.

Consider that option carefully since the loan will be considered not just your child's debt, but yours. If your child misses a payment – whether that’s next year or sometime in the next three decades – it will be your responsibility to make it. Be sure to set up rules about paying promptly and let your child know you’ll step in and sell the property, if needed. (For related reading, see Saving Your Home from Foreclosure.)

Choosing a Lender

You can get a mortgage from a bank, mortgage broker or online lending company. Banks offer in-person meetings, recognized name brands and competitive fees – but they may not have a broad variety of loan programs and, as a result, may not have the lowest interest rates or fees. Mortgage brokers act as go-betweens for borrowers and lenders to streamline the mortgage process. Many offer in-person service and can help borrowers find loans with better interest rates; however, not all lenders work with mortgage brokers – which can limit your options. Finally, online mortgage lenders offer a large variety of loan types, convenient 24-hour shopping and instant comparison among multiple loans – but not in-person support. (For more, see Advantages and Disadvantages of Using a Mortgage Broker.)

Personal and financial factors may affect the decision to go with a bank, mortgage broker or online mortgage provider. If you want to discuss the mortgage face-to-face with the lender, for example, you should shop at banks or mortgage brokers. This may be the best idea for teens, especially if you are co-signing, because they can be more involved in the process and ask questions directly. If you are web-savvy (as your teen is, no doubt) and familiar enough with the process to teach your teen yourself, you may benefit from using an online mortgage lender.

Pre-Qualification and Pre-Approval
A lender determines the amount of money you can borrow through a process called pre-qualification. Typically, you meet with a lender and provide information regarding your assets, debts and income. The lender provides an estimate for the loan size – but it doesn't formally approve the mortgage at this point. Pre-qualification is intended to determine an appropriate price range.

Your teen needs to apply for the mortgage by completing the necessary paperwork. After the lender verifies the financial information provided (checking credit scores, verifying employment information, calculating debt-to-income ratios, etc.,) the lender can pre-approve him or her for a certain amount. If you are co-signing, you will need to include your information, as well. This confirms your teen's eligibility to qualify for a mortgage, strengthening his or her position when finding a desired property and making an offer. (For more, see Mortgage Basics: How to Get a Mortgage and 6 Tips to Get Approved for a Mortgage.)

The Down Payment
Depending on the type of property involved and the type of mortgage, down payments can range from 3.5% to 20% or higher. Lenders may require up to a 50% down payment, for example, on certain condominiums that are not on the FHA-approved condominium list. The closing, or settlement, is the event that transfers ownership of property between the seller and the buyer (your teen). The property will be recorded in your child's name, or both of your names if you are co-signing, and the city or county will be notified of the transaction and record the new owner(s) of the property. (For related reading, see FHA Loan: Basics and Requirements.)


Teaching Financial Literacy to Teens: Conclusion
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