300 River Street, Weymouth, MA 02191
300 River Street, Weymouth, MA 02191
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.
Once you have moved into a new home, you’re going to want to make it look amazing with some nice furniture. If you’re in too much of a hurry, you can make some very common furniture buying mistakes that will cost you more than just the money you have wasted on furniture. Read on before you begin filling that new home with sofas, chairs, and tables.
You Don’t Plan For Style Or Practicality
If you’re a young couple moving into your first home, you probably have a lot of plans for the future. Children may possibly be a part of those plans someday. Remember that a $3,000 leather sofa may look really great when it’s just the two of you. Fast forward a couple of years to the terrible twos and envision permanent marker all over that beloved couch. Keep in mind that the lifespan of heavily used furniture is anywhere between 7 to 10 years.
Even if children aren’t in your future plans, the same problems are true for pets. If you don’t have a dog and purchase the expensive sofa knowing that you have plans to get a dog, you should think twice. Pets can claw furniture and leave behind clumps of pet hair. If you have plans for children, pets, or both, consider the type of fabric that you’ll have on the furniture carefully. It’s important to select pieces of furniture that suit your life, budget, and aspirations.
You Buy Everything At Once
It can be tempting when you have an empty house to try and buy all of your furniture at once. If you buy everything at the same time, you won’t have any room for flexibility to buy pieces to add to your collection from other stores at a later date. The best way to approach filling an empty house is to buy the big necessities first, then fill the rest of your home as you find what you like and need.
You Forgot To Measure
Imagine this: You just bought your dream bedroom set. The delivery people come to the house to drop it off, and it doesn’t fit in the space! When we see things in the store, we often make every effort in our minds to convince ourselves that it will look good in our home. The reality is that furniture needs to fit in order for it to actually “work” in a room. Before you even set out to buy furniture, take measurements of every room that you’re shopping for. Have the list handy of all these numbers that you can refer to.
Finding the right furniture comes down to avoiding impulse buys for these big purchases. Planning is everything when it comes to filling your new home with furnishings that will last the test of time and design.