There are so many things to look forward to upon graduating from college, like new careers, new cities, new friends, and much more! Life after college looks different for everyone, but for some, the first big step might be a transition from dorm-dweller to homeowner. In which case, we’re here to help you plan your next move (literally).
Decide Where to House Hunt
Determining the type of house you want to buy as well as its location can be almost as challenging as it was choosing your major in college. Start by researching important aspects of different areas like safety ratings and median home values. Then, narrow down choices based on other criteria important to you. Is the commute distance to your first post-grad job reasonable? Is there enough nightlife to help you make new friends after college?
Don’t feel the pressure that your first home needs to be your dream house or forever home. Instead, a starter home is a perfect option for first-time buyers—especially someone fresh out of college—as they are generally smaller in size and more budget-friendly. Ideally, you should live in a starter home for at least five years and plan to complete a few home improvement projects along the way.
Even if it’s not on your radar at the moment, home remodeling updates can help you get the most resale value for your home once you outgrow it. In general, kitchen updates are one of the most value-adding renovations—and are do-able even with a low-income entry-level job. To help you budget accordingly, take a look at the average project costs for minor kitchen remodels. Remember, you should only spend 5–15% of your property’s total value if you plan on selling in the near future.
Consider Financial Factors
With all of the transitions of life after college and the excitement of potentially owning a home, it’s not uncommon to overlook various expenses. Therefore it’s vital to plan early and thoroughly. Be sure to research the additional costs of purchasing a home, which may include:
- Down payments
- Property taxes
- Homeowners’ insurance
More importantly, consider how your personal finances will change after college and what you need to account for in your budget. Examples include:
- Student loan repayments
- Is your six-month grace period for your federal student loans coming to an end?
- Are you on an income-based repayment (IBR) plan? If so, it might be more challenging to get approval for a mortgage.
- Health insurance
- Is your student health plan ending?
- Are you in the middle of a health coverage gap until your post-grad job benefits kick in?
Assess Your Credit
Once you establish your budget, it’s time to begin the mortgage process. When you apply for a mortgage loan, most lenders start by looking at your FICO scores—a summary of your credit report. The type of loan you qualify for will depend on your credit score, but the higher your credit score, the higher your chances are of getting approved. Most grads don’t build a credit history until after college; But to remain in good standing, below are tips to improve your credit before applying for a mortgage:
- Pay off any existing credit card balances
- Avoid making purchases with credit cards (i.e., using available credit)
- Don’t apply for credit elsewhere that will generate a hard inquiry (ex: credit cards, car loans)
- Consistently make all payments on time, especially student loans
Buying a home is an exciting and expensive investment that will undoubtedly impact your future, so take these considerations into account when searching for your first home and don’t rush the process.