Congratulations! You’ve done it. You’ve spent all that time at the library, sweated out those exams and are actually going to walk down the aisle in cap and gown. Not to mention, you have your real first job! You went through the recruitment center at school and someone actually hired you. What an exciting time in your life! Now, what to do with all that graduation cash you’re raking in? Should you buy a Eurail pass and plan a back pack trip to Europe? Or, better yet, should you buy a house?
Wow. Buy a house? Aren’t you too young? That sounds awfully grown up, doesn’t it? Personally, I probably would go to Europe if I were a recent graduate with a fist full of graduation dollars. I never really thought things through when I was young and adventurous. I’m paying for it now. But, if that opportunity had presented itself to me, I would like someone to have made me think twice about it. Besides, the dollar isn’t doing so well in Europe right now. It’s sound advice to which even I would have listened at young age.
Recent college graduates can qualify for a home loan, but it depends on a few things. A big hurdle is a down payment. There are 100% financing opportunities out there, but they aren’t as readily negotiated as they formerly have been. What better graduation gift to ask for than a home down payment? Also, I’d be willing to bet that Aunt Ginger may be more generous with her checkbook if she knows you’re saving to buy a house and not a keg of beer. Typically, you need to have 3% of your home purchase price saved, and can negotiate for the seller to pay some if not all of the closing costs. So, if you were buying a $100,000 home, you should have about $3,000 in your bank account. That’s a good starting point.
How’s your credit? Like most college kids, do you already have a credit card in your name? I hope you’ve been paying it on time. Good credit is a pre-requisite for any mortgage these days. You aren’t too young to establish good credit. If you have none, open a credit card, put your gas on it each month, and then pay it off each month. Before you know it, you will have established a good credit history. Most of you already have taken these steps.
Typically, a mortgage lender will approve a recent college graduate for a loan if their new income supports their debt, the aforementioned items aren’t an issue and they are on the job by the day of closing. In fact, if you have a contract for employment, you may even be able to close on a home loan prior to starting your new job, but you better have a solid contract and plans to start very soon (providing your first pay stub after closing is common)! In addition, you will also have show evidence to your lender that you’ve been in school for the past few years. Typically a copy of your diploma will suffice. If you don’t have one of those nifty wallet sized copies, you can bring your actual diploma to your lender and have it photocopied. (I’ve had to unroll them from their packaging tube and gingerly lay them out on the copy glass, careful not to mar them).
There are many arguments to why buying a home is smarting then renting. You aren’t “throwing away” money in rent, you’re investing for your future, and if your loan program is one that lets you rent out a bedroom to a buddy, you can actually put a little cash back into your pocket. And if you are able to put a little moola aside quickly, maybe deferring that European trip isn’t such a bad idea after all!
Reproduced with permission from Kristin Abouelata. To read more articles by Kristin Abouelata, click here Copyright 2008 Kristin Abouelata. All rights reserved worldwide.