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How To Buy A Home Right Out Of College

27 May 2008 4 Comments

In my previous article entitled, “My Four-Pronged Strategy Towards Financial Prosperity”, I discussed real estate as one of the four components of my overall financial picture. Real estate is a great way to combine your residence with a potential return on your money. While the days of automatic-appreciation are over, there are still opportunities to make money on real estate. You just have to be more selective.

Home ownership, even in today’s environment, is still a good thing. For a young 20-something fresh out of school, buying a home is a great opportunity to build wealth and build your credit. With your initial salary, it will probably be tough to afford a mortgage and with minimal savings, it could be tough to get approved for a loan. Here are some ways to tips to help make it happen.

Getting Approved For A Loan

With lender’s standards getting tighter these days, a home purchase will probably require at least a 10% down payment. The down payment can be tough for young people with minimal savings. Here are some tips to help get that down payment.

  • Save during college – If you are still in college, get a job and start putting money away. Even a couple thousand dollars may be the difference between getting approved and not getting approved.
  • Get a partner – I purchased my first house by partnering with a good friend. He was a friend I trusted and felt comfortable with creating a partnership. By splitting ownership, the hefty down payment became affordable.
  • Get a private loan – If you think the property could be a good investment, consider presenting your case to a family member for a private loan to help with the down payment. You may be able to convince your relative to not charge interest but instead receive a part of any gains made on the house on the back-end. You can be creative here.

Affording The Monthly Payments

After you have been approved for a loan, your next step is budgeting to pay your monthly payments. Unfortunately, in most cases, your monthly payment will also include taxes and insurance which seems to make many properties transition from affordable to un-affordable. Here are some ways to help make the payment less painful.

  • Interest Only – Depending on the rates and the environment, it may make sense for you to do an interest only loan. This can help keep the payment down. This should only be your approach if you are sure you will not be in the property longer than a few years. A rate reset down the road could be very painful.
  • Find renters – Are you single with other friends who are single? Or maybe you are planning to live with a group of guys and none of them are financially able to own a home. Instead of splitting rent three or four ways, why don’t you buy a house and have them pay your mortgage for you? Make sure your friends have secure jobs and will be able to pay you each month. Avoid freeloaders. Also, consider drafting basic lease agreements to protect yourself. The more “official” you make it, the better situation it will be.

Position Yourself For Your Future

I love talking about how important it is to position yourself for financial success. Eliminating debt and putting money away are the basics of positioning yourself. Owning a home at a young age may be an opportunity to continue this process. While your home is unlikely to double in value and you probably won’t pay off much of the interest, you will be investing in an asset and building your credit at the same time. Furthermore, you can take advantage of the tax breaks that home ownership brings.

Additionally, being a homeowner for the first time is a great learning experience. You are forced to learn to take care of something and take pride in something you own. You will learn the process of getting a loan and closing a large transaction. If you go through the process, soak up the experience and file away the knowledge. It will be of great value throughout your life.

Are you in your 20s and are already a homeowner? How did you do it? Share your story here by adding a comment!

4 Comments »

  • Scott said:

    Did it the old fashioned way. Got an apartment after school, saved for 2.5 years to get a 10% down payment saved and bought our first home at 25.

    80/10/10 fixed mortgage, with a 15 yr balloon on the 10% piggy back mortgage.

    It was great come income tax time this past year, you don’t understand how valuable the deduction is on mortgage interest and property taxes until you see it with your own eyes. Incomes didn’t change much from year to year, but we went from owing money to receiving a nice refund (unexpectedly).

    I like not having to worry about large rent increases at the whim of a landlord. Sure, property taxes can go up, but even if they go up by 10% it’s not 10% of the entire monthly bill.

  • Sam said:

    I bought my first home after college … didn’t have a ton saved but managed to split the down payment with my dad. After a year, I took out a home equity loan to repay my dad so that it was completely mine. The down payment was enough to get me in the house and I’ve had 2 roommates/friends living with me since I purchased it. The rent money pays the mortgage and some of the bills. I only have to come out of pocket about 200-250/month to live. Definitely has turn my house into an asset instead of a liability. Of course, i was lucky to have a father capable of helping me for a year.

  • Nicholas said:

    did you have any student loans? If so how did you pay them off during college?.. I am a student paying my way through a break from my parents getting divorced-1 parent walked away with all the assets. So i chose to file my fafsa under the parent who was left with nothing, and now i am fortunate to have aid avaliabe But it has only played against me because now i am stacked with debt. I chose to take out the most and am going to have close to 40g's in student loans. I graduate in about a year and 1/2, but have much aspiration to buy a home out of college. Any suggestions or adice?