Buying a home can be a daunting idea to young professionals. While just getting started with your career, saving up a 20% down payment and signing up for a mortgage might seem like a far-off concept, but it may be closer and easier than you think.
Start Saving Today
The first step to buying a home, long before your closing date, is to start saving for a down payment. While with private mortgage insurance (PMI) or a government-backed loan (FHA) may allow you to buy with a lower down payment than 20%, a bigger down payment will lower your monthly costs of owning your home.
Start by putting away as little as a few dollars a month to get in the habit and increase the amount as you are able. If you can save $20, $100, or $500 per month, even better. But your savings should start somewhere.
Your best bet is an automated savings plan where you don’t even have to think about transferring the money each month.
Set Realistic Expectations for a First Home
Unless your first job out of school is way different than mine, you won’t be able to buy a luxury mansion or penthouse with an entry-level job.
A first home is often called a “starter home” for a reason. My first home purchase was a two-bedroom condo just outside of Downtown Denver. It was affordable for my price range and the location was great, but it didn’t have the bells, whistles and space of my new home.
I had a roommate living in the second bedroom most of the time I was there, which made my monthly cost lower than the apartment I was renting before I became a homeowner.
Get Your Finances and Credit in Order
Buying a home takes more than a down payment, you need to have the rest of your finances in order as well. Lenders look at both your ability to make monthly payments and your credit when deciding whether to approve someone for a mortgage.
To get started, pay down all of your credit card balances as quickly as possible. This lowers your debt-to-income ratio, as you don’t have to make those monthly payments anymore. It also can dramatically improve your credit score if you were carrying any balances.
Get a copy of your free credit report from the official government site at AnnualCreditReport.com. You can get an actually free credit score from Credit Sesame with advice on how to improve your score.
Find the Right Agent
Once you have your finances in order and think you are ready to buy, the next step is to find the right agent for you. For your first home purchase, it is important to have someone you can trust in your corner and to help you weed through the listings.
Start by finding a few potential agents. Give them a call, ask them some questions, and get a feel if they are the right fit for you. Everyone has different needs, and it is best that you find someone you get along with well and trust to help take you through the purchase process.
When you do find an agent, be sure to check out the best real estate apps to help get you started on your search for the right home. Who knows, you may only be a few months away from finding your first home.