All the tips you need to survive life after college
Buying Your First Home
By Rob Kallick
Graduating college or grad school and looking into buying your first home? It is important to do some research first—let us help you out!
Buying your first home
As a recent college graduate, do you think it’s too soon to buy your first home? Now is a great time for young people to buy their first home, according to mortgage planners and real estate experts across the country. Diving into the complicated process of home buying can seem overwhelming. There are mountains of paperwork involved, countless fees, and vocabulary words you don’t yet understand. But once you get started, the home buying process will get easier. And homeownership makes good financial sense. Over the long term, it’s a great investment—one that offers tax breaks, financial gains, and plenty of personal satisfaction.
Ins and outs of home buying
Jay Dacey, mortgage planner with MN Real Estate Loans in the Twin Cities, advises recent grads to talk with a mortgage broker several months before they plan to purchase a home to get the best rates.
“Most firms will offer a free credit report and tips to improve that magical FICO score—the credit scores most lenders use to determine their risk in lending to you,” he says.
National real estate expert Jack Sternberg agrees that first time homebuyers must get their finances in order before pursuing homeownership. Sternberg says you should spend at least six months prior to purchasing a home, “checking your credit report to make sure that there are no blemishes, and paying off collections, and other debts to improve your chance of obtaining and affording a mortgage.”
He explains that as a first time real estate buyer, you should get pre-approved for a mortgage through a lender.
“When a lender pre-approves you for a mortgage, you are given an estimate of the amount of mortgage you will be approved for based on your credit history, debt, and income,” he says. “With this pre-approval amount, you have a price range that you can use to shop for a home.”
The agent you choose will play a major role in the home shopping process, Sternberg adds. “Not only should you choose an agent that is reputable and experienced in the local market, you should also make sure that you feel comfortable communicating with the agent. It is helpful to work with an agent that has experience working with first time homebuyers. You do not have to be best friends with your real estate agent, but you do need to get along with this person.”
Picking which house to buy can be a difficult step for many first time homebuyers. You may even find yourself choosing between several homes. Keep in mind that finding the house of your dreams your first time might be a bit of a stretch, especially if you are limited financially. You may have to lower your expectations in order to find a home that fits within your budget—but that doesn’t mean you have to pick a house you hate. Keep looking until you find something that feels right to you. Sternberg also suggests that you sacrifice some of the things you desire in a home that can be added later when you have more income.
Jason R. Hanson, author of How to Build a Real Estate Empire: The Insiders Guide to Making Your First Million in Five Years agrees that your first house is never your dream house. “Don’t over extend yourself, and make sure that you can afford the monthly payments,” he advises.
Know your finances
“When students arrive on college campuses for the first time, they are deluged with offers to obtain credit cards, but no one ever explains how to use credit responsibly, or the consequences of mishandling credit,” says Gail Cunningham of National Foundation for Credit Counseling (NFCC).
“College is a wonderful time to establish a good credit report, but that can only happen if the student manages his credit wisely,” she says. “What he often doesn’t realize is that his future employer will pull his credit report, as will lenders and even those from whom he wants to purchase insurance.”
With all that potential debt piling up—Cunningham states that almost one half of all college students have accumulated more than $3,000 in credit card debt, and one in 10 graduates owe as much as $7,000—buying a condo or house after college can seem like a farfetched dream. But in today’s buyer’s market, as long as you have a good credit report and score, a home of your own can be a reality.
Cunningham explains that since recent grads will often be paying off student loans, keeping a mortgage payment low will be essential to financial stability. The key is to make a solid down payment when purchasing a home, so your monthly payment will be lower.
However, this may mean you will need to postpone the purchase of your home until you’ve built an adequate down payment. Cunningham says this will give you time to save money while you research the area and finds your perfect first home.
She also advises that currently lenders have returned to more traditional lending standards, so someone with a verifiable income, a sizeable down payment, good credit, and a good score is an ideal candidate for home ownership.
A good first step? Take advantage of the courses on homeownership available through NFCC Member Agencies. “Many of the housing woes we’re experiencing today could have been avoided if buyers had bothered to become educated on the home buying process prior to signing on the dotted line,” warns Cunningham.
