You may think it overzealous to start planning your first home purchase when you’ve recently graduated high school. However, building your credit score, researching mortgage companies, career planning, and managing your student loans properly can require years of preparation. Whether you purchase your first home after college or after living with your parents, here are some tips to help you achieve home ownership and avoid costly mistakes:
Plan for a down payment
Most financial planners recommend first-time homebuyers make a down payment of 20% of the property’s price, meaning you’d pay $40,000 up front on a $200,000 property. You aren’t necessarily required to put down that much cash, but it could impress potential loan institutions and save you money on down payment loans or private mortgage insurance.
Down payment assistance is another helpful option. Variables such as income, credit score, and profession mean you could qualify for one of the over 2,200 nationwide assistance programs that help first-time buyers save thousands of dollars and obtain low-interest rates and tax breaks.
Build your credit
Since most high school grads have little to no credit, it may take time to build up a healthy credit score. Consider applying for a credit card to use sparingly, and pay off the balance monthly to improve your credit. Just don’t get carried away; keep swipes to a minimum and the balance within your budget.
Knock out student debt
Today’s exorbitant college tuition rates and student debt averages can make homeownership seem like an impossible dream. Good news: it’s not! There are options, such as refinancing to extend your student loan and lower your monthly payments. Unfortunately, that will require paying additional interest. However, there may be options to offset that extra interest cost.
Many states offer programs to assist prospective homebuyers who are paying off student loans. Through these opportunities and other similar ones, you could secure low-interest-rate mortgages or funds for down payment assistance.
In addition to initial expenses, such as your down payment, closing costs, real estate taxes, homeowners insurance, and moving expenses, you should also plan for unexpected expenditures like roof repairs, plumbing problems, or desired upgrades. Having a savings account with a healthy balance can also be attractive to lending institutions, especially if you’re a millennial.
According to a 2016 survey from the American Institute of Certified Public Accountants, millennials feel pressured to keep up with modern trends and technology, which leads to overspending and increased debt. Healthy savings and proper money management could go a long way in showing a lender you’re serious about your budgeting and investments.
Consider a starter home
Your first-home purchase likely won’t be your last, so if you find an affordable property and lock in an ideal interest rate, you can start building your reputation with your loan company as well as your credit score. When you’re ready to sell your first home and purchase your second, you’ll already have an established relationship with your loan officer.