Graduating College? Graduate from Renting!

Advice for first-time buyers starts by saying that it is totally possible at any point to create a clear-cut and realistic plan to own a home. You may think it sounds out of reach that the next step after graduating college could be buying real estate but, believe the experts, it can be! All you have to do is take it one step at a time. 

Stepping Stones are Smart

Many people believe in renting or living with parents until they get to a point in their career where they are making more money. This method is rarely the best way, often the slowest way to get into your dream home, and not great advice for first-time home buyers. Instead, start small. In the greater Chicago area, for example, if your starting salary out of college is $45k-$60k, it’s more than realistic for you to purchase a small condo. Now, a small condo doesn’t exactly sound like a forever home, and it doesn’t have to be, but it could be the smartest way to afford wherever you ultimately want to end up.  

Saving vs. Building Equity

Let’s say that your monthly rent payment is $150 less than the monthly mortgage payment on a condo, which is equivalent to your apartment. If you’re trying to save up for a large down payment, here are the considerations: 

• By renting, you can put $150 aside each month. To get to $10k, it will take you about three and a half years. 
• In the meantime, rent could go up, extending the amount of time needed to save. 
• By buying a unit, you earn thousands of dollars in equity (the value of the home minus what you owe) as time goes on. At the end of three and a half years, you could have as much as $20k in equity or more, which turns into cash when you sell or refinance. 
• In the meantime, your mortgage payment is fixed, so you know exactly what your monthly cost will be until it’s time to move on to the next home.  

In the end, starting with a small purchase is like a ticket for a bullet train straight toward your bigger homeownership goals. 

Get to Know Loan Programs 

Now that we know how owning a home builds wealth more quickly, let’s go back to the beginning and talk about how much wealth you need to take the first step. 

One of the biggest pieces of advice to first-time home buyers is to talk to a mortgage banker before anything else. They will look at your credit, income, and accounts to tell you what loan programs are available to you. This is much more accurate and personalized advice than you could ever get by researching mortgages on the internet. You may be surprised to find resources like… 

• United Home Loans’ H.O.M.E. lender contribution, giving you up to $5k to use toward upfront costs
• HomeReady and HomPossible loans with a minimum down payment of just 3%
• State-sponsored down payment assistance programs that offer forgivable assistance, or if you need more, assistance that can be paid back over time 

Consider again your starter salary of $45k-$60k. That would qualify you for nearly all home buyer assistance programs. Also again, taking a look at a small condo in the Chicago area, let’s say it’s priced at $180k. By putting 3% down, you would need $5,400 for the down payment and an additional $5,000 in closing costs. Utilizing Illinois down payment assistance, you would receive $6,000, leaving you only $4,400 needed out of pocket, which can be gifted by a friend or family member. 

Upfront costs can sound scary, but as you see above, there are solutions that can make you much more confident in being able to tackle the goal of homeownership. 

From Dorm to Your Own 

A big life change that transitions to a small step in real estate is a huge deal for your financial future. Our advice to first-time home buyers? Start planning with a mortgage banker today!