How To Buy A Home Right Out Of College
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!