Congratulations new graduates! You’re officially free of classrooms, tests, and the best yet…student housing. With increasing rent prices conflicting with student loan payments, it may be in your best interest long term to consider buying and investing in a home. We are here to tell you it’s not as impossible as you may think. Using these strategies and tips, living in a home that isn’t owned by your mom and dad is possible!
What’s a budget?
It’s a handy thing that’s absolutely necessary in order to save for a down payment. In most cities, the cost of rent is rising so the bills start to add up. Start figuring out if you get paid bi-weekly or monthly then allot money for each required payment – student loans, rent, insurance, cell phone bill, etc. Then budget what’s left over for essentials like gas and groceries. From there, you can visualize what you have that can be saved or spent on fun. Make sure however that you aren’t spending too much on entertainment or going out, or things that you don’t necessarily need. It can be tempting since you have much more money than you did in college to convince yourself you can afford a dog or get that $500 watch you really want. Be disciplined. A good philosophy – “is it worth the memory it will make?”
If you struggle with making a budget on your own, there are plenty of apps that help make it effortless to track your spending and bills.
Work on that credit score.
Fix up your credit score before you fix up a home. The best rule of thumb is paying your bills on time, especially your student loan(s). You also should try not to use more than 30 percent of your credit limit, which makes lenders that much more willing to do business with you. We also recommend that you not close any old credit card accounts you’ve paid off, as they can help build your credit. On the flip side, you should also refrain from opening new credit accounts before applying for a mortgage, since doing so can affect your credit score.
Get debt paid off.
It’s more than just discipling your spending. The best way is to put off large purchases you don’t need. For instance, buying a gently used couch versus a brand new one can save you hundreds of dollars. That’s money you can be putting toward debt. A great way to approach debt is to use Dave Ramsey’s Debt Snowball Method. It’s a debt reduction strategy where you pay off debts in order of smallest to largest, gaining momentum as each balance is paid off. When the smallest debt is paid in full, you start putting what you were paying onto the next smallest debt until it’s all paid off. So say you owe $6,000 on your car and $16,000 in student loans and you put $125 towards your car every month and $180 towards your student loans. Once your car is paid off, you start putting your car payment of $125 towards your student loans on top of your $180 monthly payment until that debt is covered in full. If you’re saving up to buy a home, make sure you stay fully educated on your student loan debt including interest and monthly payments.
Have more than one savings account.
First of all, if you don’t have a savings account at all – get started ASAP. Having one with money set aside for emergencies is crucial but you should also keep one strictly for saving for a home. A majority of banks allow you to set it up a direct transfer every month that you can treat as a bill. Say you get paid bi-weekly and you directly transfer $100 each paycheck to your savings account. That totals $200 a year a month which comes out to over $2000 a year you can save.
Utilize goal setting.
Watch the mortgage interest rates and keep in mind what kind of house you can afford! This makes goal setting a lot easier for knowing what you need in terms of a down payment and what you’ll have to pay each month. Keep in mind, it can change due to rate fluctuation. If you know what your goals are, it makes cutting back spending a lot easier when you know how much you need, which could be less than you think! It’s never too early to start saving for a down payment on a house. It’s okay to go ahead and talk to a local realtor and/or mortgage specialist to learn what’s a reasonable down payment to expect to put down on the type of home you’re looking for.
Think you’re ready to consider homeownership? Talk to a licensed mortgage professional today to discuss your options.