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How to Buy a House or Condo Immediately After College

Readers, can you help with this question? Another reader wants to know if he’ll be able to buy a home or condo right after graduating from college this year. He’ll be armed with a degree in accounting, already has a job lined up, and will have $30k in student loan debt. I’ll share my thoughts below, but I know some people out there who did buy homes right after school, and I’m curious to know how it went.

I think your ability to a purchase a home straight out of college depend upon a few factors. Certainly you will need to have good credit. The question, when you’re around 21, 22, 23, is have you had a credit card or two open throughout college and always paid them on time? Then your credit should be OK. If you haven’t opened enough credit though, getting a mortgage these days may be tough. And, with such a short credit history, even one late payment could foil your score.

Second, how much are your monthly student loan payments as a percentage of your monthly income? Less than 10% you should be fine. Possibly even 20% if you have no other debt. Next, do you have a down payment? I don’t know that it’s absolutely necessary if your credit is excellent, but I have heard that it really helps these days to have as much as 20% down.

Finally, will your salary qualify you? You need to make a certain amount to even be considered for a mortgage. Here in Boston that was, until recently, hard to do on a single income–let alone a single entry level salary. Then again, the recessed housing market has lowered purchase prices and made affording a modest condo with reach. Also, I’m a journalist, not an accountant, so it’s possible your first gig will pay a healthy bit more than any of mine to date! A good tool for seeing what you can afford is CNN/Money’s affordable home calculator.

That’s about all I can think of–again, did anybody buy a house or condo right after college? How’d you do it? What do you recommend?

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About David Weliver

David Weliver is the founding editor of Money Under 30. He's a cited authority on personal finance and the unique money issues we face during our first two decades as adults. He lives in Maine with his wife and two children.

Comments

  1. I was able to buy a condo about 6 months after graduating from college. I had no student loans because I lived at home, got scholarships to pay tuition, and had a part-time job on campus. I got a 30-year fixed at 6.75%.

    This was in 2005, but my main challenges were proving that I would have a steady income with my new job. A few months of pay stubs took care of that. Another thing the bank wanted to see was a savings account with 3-6 months expenses. I was able to get by with just a 3% down payment, but I highly doubt that’s possible any longer, so a 10-20% down payment will probably be necessary. The bank also wanted to see some evidence of making payments on a regular basis, even simple enough as a monthly cell phone bill or utilities/rent.

    There have always been programs for first-time home buyers, so I would research those as they will probably be much easier to qualify for.

  2. I bought a couple months out of college as well. I had no student loan debt though (I worked full time all during school) and no auto/credit card debt of any type. My credit was very good as well.

    I was lucky in that, due to having some investments, my partner and I had enough for 20% down on a fairly modest condo. Our combined income then was not all that high given that we were in a pricey urban market, but the combination of all these other factors made it. We got a 5/1 ARM in 2003 (a good choice then, less so now) at 3.75% and recently sold due to a relocation for a modest gain, which isn’t bad considering the market and that we enjoyed 5 years of tax bennies and money not wasted on rent. Plus owning was just a much better living experience in general.

    Nowadays I’m pretty sure that 10-20% down (depending on your local market) will be a necessity. A few years ago it was rare to see this, but not now. Also I’ve been hearing that you need a credit score well into the 700s, cash reserves (which could include investments, retirement accounts, 401ks, etc.) and a low debt load.

  3. Oh I forgot to add one thing that made a big difference for me. If the sellers aren’t offering it, negotiate for a cash rebate at closing. The idea behind this is basically that your offer is structured as $XXX,XXX for the property but as part of the purchase they are required to give you a certain amount of cash… maybe a couple grand. If the unit is new construction, ask for MUCH more… maybe as much as $10-30k in some cases!

    Why is this? Two reasons:
    -If your reserves are going to be low due to the purchase, this will help rebuild them.
    -If you buy a home, you often need to undertake some projects to customize it or just buy furnishings and this can be expensive.
    -It’s one of the easiest ways to functionally take a very low-interest loan out.

    Now, don’t get me wrong, you should be somewhat careful with this. But if you have to scrape together a significant chunk of your savings for that 10 or 20% down, then getting a few grand back at closing (or much more, in the case of new construction) may help negate it significantly. I did this and it meant I really didn’t have any money worries until I was able to build up my reserves a bit, and was able to easily afford the upgrades such as flooring and paint that had to be done right away.

  4. Nowadays you really need to have a downpayment. My husband and I refinanced a few months ago and we needed a minimum of 5% equity to do this. Both my husband and I have excellent credit scores. I think if we didn’t, we’d have need 15%- 20%. If this person has excellent credit, an emergency fund, and 10% I would say they should be fine as long as they know they want to stay in that area.

    Something nice about being young and just starting out is that you can move around the country a bit to build up your resume before settling down. If you buy a house right now it would be hard to pull up those roots and move if a good opportunity came knocking.

  5. One thing to keep in mind is the possibility that your new employer will help, especially for 1st time home buyers. My graduate school employer (I’m in the sciences, so it’s a funded position) had programs to help people get good loans with low down payments (basically, they’d chip in cash, plus provide some guarantee of your income) if you were buying in one of a large number of “transitional” neighborhoods near the university that they were trying to help bring up. It was a great deal – designed for young people with education but no cash, setting you up to live near work, buying in an area being heavily invested in such that property values were poised to rise.

  6. Don’t forget with the housing market the way it is you must be willing to stay put for 5-10 years. If you are planning on buying a house move somewhere get situated and start a career, if everything is going good then buy a house. Many people don’t want to trapped in the town where they went to college.

    -Dan Malone-

  7. Wow, I couldn’t imagine buying my own place right out of college. Even with no debt thanks to my parents covering my college tuition and other costs, I still wouldn’t have the downpayment or job security required to buy any sort of property. I’m impressed with anyone who can do this so quickly!

  8. We’re purchased a townhouse within just weeks of graduation. My husband and I have excellent credit score, making only $71K with student loan debt of $25K. We got a FHA loan, put down 3%. In 2003 we purchase a $230,000 house. If you can and really want to be a homeowner…I say go for it. It will be hard the first few years, but being a homeowner is better then renting. You are building a future for yourself. If you need get roommates. They’re pay your mortgage and share the expenses.

  9. Banks don’t want to make a loans these days.

    I am currently trying to purchase my first home and it has not been easy.

    I considered my self in good shape financially, 0 debt, 100 K salary and 60k for a down payment. I live in a high priced area so I was am looking at condos in the 300K range. This would allow me to put 20% down.

    I tried to get a morgage and was flat out rejected by 2 banks because my credit score was only 699. You must have a 700 or better or they simply won’t talk to you. I have 1 credit card and no credit history. I was absolutly amazed. Now I have to take out an FHA loan and pay PMI even though I can put 20% down. The morgage companys are placing harder restricts on the FHA loans that are hard than the goverment restrictions.

    I believe that the banks right now just don’t want to lend money!.

  10. I bought a place 1 year out of college. I’m glad I rented first, it got me used to the area and by the end of the first year, I had an idea of whether or not my job was stable and I liked the area. I also had a good snapshot of the real estate picture and had a general idea of where to look.

    I put 10% down and went with ING Direct as a loan source. My credit was solid and I wans’t worried about my job.

    My suggestions:

    1. Wait at least 1 year to buy, rent first, get a feel for the area
    2. Research what neighborhoods you’d want to live in and what house prices are, come up with a goal.
    3. Save, save, save. Even now, some lenders will give you a loan with less than 10% down, but don’t take it, you’ll get ripped off in the long run. Make sure you can put down at least 10-20% down at closing.
    4. Save an extra 2-3k for closing/moving costs.
    5. To figure out how much house you can afford, run numbers based on 30 year fixed rates. If you can’t afford this type of loan, your price range is too high. My rule of thumb: if the monthly payment is more than 1/4 of your NET paycheck (after all taxes, benefits, etc.), go lower.
    6. From the 2-3k that you’ve saved up for closing and moving, whatever you don’t use, roll over into an emergency fund immediately. Don’t touch that money until you ABSOLUTELY NEED it.

  11. For young borrowers with poor credit or little cash, there’s the FHA kiddie condo program. It basically lets a blood relative cosign on the mortgage and not occupy the home–a great deal if you have a willing family member.