April Stirling's Blog
For most college students and recent grads, the prospect of buying a home seems slim and distant. With the cost of a college education growing each year and the price of houses inflating, it can seem daunting to begin to save for a down payment or build credit.
However, there are ways to start planning now for buying a home, even if you are burdened with student debt and rising rent.
In this article, we’re going to do just that. If you’re a recent grad or a current college student, read on for a guide to buying a home.
What do you need to buy a home
Once you graduate college you might be wishing you could have taken an elective called “How to Be an Adult 101.” There are many personal finance problems in life that just aren’t taught in school, from saving for retirement, to borrowing for a house or car, to investing in stocks and bonds.
So, what are the main things you’ll need to buy a home? Before you start applying for mortgages, you should know that just because you can get approved doesn’t mean you should buy a home.
Purchasing a home is a huge investment and one that most homeowners take decades to pay off. With high interest rates and private mortgage insurance (PMI), the cost of owning a home can be immense.
To avoid PMI and get a good interest rate, you’ll need a few things.
Your credit score is one thing that lenders take into consideration when determining how risky it is to lend to you. They want to know that they’ll receive a return on their investment and that you won’t stop paying your mortgage. A good way to gauge this is by looking at your financial history.
Your credit score mainly takes into account the following five things:
Payment history - 35%: Do you pay your bills (utilities, loans, etc.) on time each month?
Credit usage - 30%: How much of your maximum credit have you used? If you max out your cards this can reflect poorly on your ability to manage money. However, if you don’t use any accounts you might have a hard time building a payment history.
Length of credit history - 15%: The longer you’ve been paying bills the more trustworthy you are to lenders
New credit - 10%: If you recently opened or attempted to open cards this will temporarily lower your credit score as it could be a sign of financial duress
Types of credit - 10%: store accounts, credit cards, loans, etc. Having a variety of credit types will boost your score.
Having student loans as a college graduate can often give your credit score a leg up on others who don’t have a credit history. However, to boost your score you’ll want to keep making on-time payments and consider using a credit card if you can afford it.
Most recent college grads cringe when they hear that their employment history is important to lenders. However, you might be pleased to know that being a full-time student is something lenders take into consideration.
They will, however, need to see employment history from your current employer, and the more you can prove that you have a stable job the better.
One of the most important things you can do right now is to save for a down payment. Designate a portion of your paycheck each week to a separate savings account if you need to in order to hold yourself accountable. The bigger down payment you can make, the better your interest rate and the more money you’ll save over the length of your mortgage.
Finally, don’t let increases in your salary change your lifestyle. Staying frugal will help you avoid “lifestyle inflation” or spending more simply because you make more. Decide what you value, and choose purchases wisely.
If possible, it helps to maintain a flexible deadline as you navigate the homebuying journey. Because if you have a tight deadline in place, you risk making a rash homebuying decision. And as a result, you may pay too much to acquire a home. Perhaps even worse, you risk purchasing a house that fails to match your expectations.
As you prepare to kick off your homebuying quest, it helps to plan ahead. Fortunately, there are lots of things you can do to streamline your home search and discover your ideal residence in no time at all.
Now, let's take a look at three tips to help you accelerate the homebuying journey.
1. Prepare Homebuying Criteria
If you know you want to buy a home, you should put together property buying criteria. That way, you can enter the housing market with a plan in hand to acquire your dream residence.
To establish homebuying criteria, think about where you want to reside. For instance, if you want a home close to parks and other family-friendly attractions, you should hone your house search accordingly. On the other hand, if you need a house that offers quick, easy access to family members, you should search for a home near these relatives.
Consider the features you want to find in your dream home, too. If you make a list of home must-haves, you can focus exclusively on houses that have the features you require.
2. Establish a Budget
Usually, it is beneficial to begin a home search with a mortgage at your disposal. If you get pre-approved for a mortgage, you will know how much you can spend on a house. Then, you can search for houses that won't force you to exceed your budget.
To obtain a mortgage, you should meet with a variety of banks and credit unions. These financial institutions can teach you everything you need to know about home financing. Plus, they can help you make an informed mortgage selection.
3. Hire a Real Estate Agent
With a real estate agent at your side, you should have no trouble performing a successful home search.
A real estate agent is devoted to homebuyers' success, and as such, will do what it takes to help you achieve your desired results. For instance, if you want to buy an affordable house in a small town, a real estate agent will make it simple for you to do just that. Or, if you want to purchase a home near your office in the city, a real estate agent will craft a custom homebuying plan so you can accomplish your goal.
Furthermore, a real estate agent takes the guesswork out of buying a house. If you ever have homebuying concerns or questions, a real estate agent will respond to them – without exception.
Want to enjoy a fast, stress-free homebuying experience? Take advantage of the aforementioned tips, and you may be better equipped than ever before to seamlessly navigate the homebuying journey.
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