Graduating college is at the forefront of everyone’s minds when the assignments get hard and the tests even harder, but what comes next? For most students, owning a home may not even be a dream. But here’s the thing: you don’t have to wait for your 30’s or 40’s to buy a house. With some smart decisions now, you can save valuable time and money to get settled in your very own house. Whether it is getting a credit card, saving extra cash for a down payment, or understanding how mortgages and interest rates work, it is the perfect time to start looking into what comes after graduation. Here are a few easy ways to start “building” your future towards homeownership.
- Building and Managing Credit
- Saving for a Down Payment
- Understanding Mortgage Types and Interest Rates
- Balancing Student Loan Debt with Homeownership
Building and Managing Credit
One of the first things to do on this journey towards owning a home is getting a credit card. Many students are scared to get a credit card because of various factors such as fear of debt, lack of education regarding how credit cards work, “horror” stories from family or friends, or a preference for other methods of spending like debit cards. While these can all be genuine fears or questions, there are ways to make sure you are using a credit card responsibly.
At the start, only use your credit card for small purchases such as a grocery run to Walmart or a lunch at Chick-fil-a. Even small purchases such as these ones will gradually increase your credit score when you pay them off each month. If you think you will struggle remembering to pay credit card bills off, set a reminder or automate payments through your bank. I compare paying off credit card bills to going to a dentist’s appointment. When I have a dentist’s appointment coming up, I schedule it into my calendar, so I know I have an obligation on that particular day, and I won’t forget to go to this appointment. Setting reminders or automating payments can give you peace of mind while being able to build good credit for future investments.
Saving for a Down Payment
The idea of saving more money when spending a generous amount of money to attend school may be hard to comprehend! This will entirely depend on if you can sacrifice a little money right now to help speed up the investment into a home later. If you are wanting to start saving money for a down payment, open a separate savings account that is only dedicated to this goal. This separation of accounts will help make sure you won’t dip into this dedicated savings account unless an emergency happens. If you have the option, try to open a high-interest savings account that will grow your money faster than a regular savings account.
Just like with credit cards, automate your savings account to transfer a specified amount into your “down payment” account each month, so you are consistently depositing into this account. Try to think of it as just another bill you need to pay to meet your needs for the month. It may be difficult to do with all the expenses that come in a typical month, but your future self will be thanking you for your sacrifice.
Understanding Mortgage Types and Interest Rates
While the two steps above require you to spend money or save money, understanding your options regarding mortgages and interest rates is free to research. You may be wondering, “what is a mortgage?”. A mortgage is a loan used to purchase real estate but more specifically a home. This mortgage allows you to purchase a home without having to have all the funds available at the given moment. Each month for the next 15-30 years, you will have a payment including interest that is your obligation to pay off.
With this long of a commitment to pay off a house, you want to make sure that before you buy a house, you research what you can afford and what those payments may look like. To do this, you can look up “mortgage calculator”. Websites like Bankrate or NerdWallet can be good resources to help you get a realistic expectation of the down payment, loan term, current interest rate, and monthly payment. Keep tabs on interest rates because they are constantly fluctuating. This can give you some valuable insight on when to buy and when to hold off.
Balancing Student Loan Debt with Homeownership
To go to college, many students need to take out student loans. This becomes one of the biggest factors that prevents students from looking into future investments such as homes. It is understandable that these students do not want to go into more debt. No one likes to owe money.
Students can look at balancing their student loan debt by exploring refinancing options. If you have a high-interest rate on your student loans, try to look to see if there are better alternatives that can give you a lower rate. A lower rate would allow more money to be available to you to save for a home.
You can assess how your debt may be impacting your ability to save for a home by reviewing your debt-to-income (DTI) ratio. This DTI ratio compares your monthly debt expenses to your monthly gross income. If this ratio is high, then it shows adding another expense such as a mortgage might not be a good idea (or maybe would not even be allowed by the bank).
As students our focus needs to be on our degree, but we can also start looking at what comes after. Homeownership doesn’t have to remain an unattainable dream if we take the necessary small steps now to prepare ourselves for what the future may hold. Small steps such as getting a credit card and using it responsibly, saving extra money for a down payment, or doing research to be ready for when the time comes to buy a house are all things that we can do now to save some hassle in the future. Taking it step by step, your future home may be closer than you think!