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Being a college graduate isn’t enough to make you ready to become a homeowner. Read on for other considerations to help you decide it’s time.
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Graduating from college can be the start of your adult life. And you may be excited to do adult things — like buying a home of your own. But, before you rush into home ownership, you need to make sure you are really ready to take on the financial responsibility that this entails.
To help you determine if you’re ready to get a mortgage and buy your first house, be sure you’ve checked these tasks off your to-do list.
You have a stable career
Mortgage lenders typically want to see that you have a consistent two-year work history. This means you have worked for the same employer, or at least within the same industry, for two years and your income has been pretty stable during that period of time.
While it is possible to get a mortgage from some lenders without that stable career on your record, you’ll have many fewer loan providers to choose from and you may get stuck with a higher rate due to the increased risk you present. If your income has gone up recently, the lender may also only count some of your earnings when calculating your debt-to-income ratio.
For example, if you made $30,000 two years ago and $50,000 last year, you may get credit only for around $30,000 of your income when the lender decides how much you can afford to borrow.
Of course, you’ll also want to have a stable career for other reasons as well. The last thing you need is to buy a house, lose your job, and become unable to make the mortgage payments.
You don’t plan to move within the next few years
You’ll also want to make sure you’re ready to set down roots before you buy a home. During your post college years, you may find you need to relocate a few times for career or relationship opportunities. Unfortunately, if you’ve bought a house, you could be stuck in one place until you’re able to find a buyer and sell it for enough to pay off your home loan as well as all closing costs.
Unless you intend to remain in one place for at least two years — and ideally closer to five — you should probably wait to purchase. Otherwise, property values may not have gone up quickly enough to cover the closing costs and fees you’ll incur, including around 6.00% commission to a buyer and seller’s real estate agent.
You have a down payment saved
Having a down payment in a savings account is very important before you move forward with a home purchase as well. The National Association of Realtors indicates the typical first-time buyer has made around a 6% to 7% down payment since 2018. With the median sales price of homes sold during the first quarter of 2023 coming in at $436,800, you could be looking at a down payment of over $30,000 for a median-priced home. That’s a lot of money.
Even if you buy a cheaper house, you’ll still have to come up with tens of thousands of dollars. And, if you do not have a down payment of at least 20%, your mortgage loan costs will be higher due to the fact you’ll be required to pay for private mortgage insurance.
So, unless you have a good amount of money to put down, keep working and saving for a while before rushing into buying a home of your own.
You have an emergency fund with three to six months of living expenses
Finally, you should make sure you have an emergency fund large enough to cover three to six months of living expenses including your new mortgage payment. That way, surprise home repair expenses or a job loss won’t derail your financial life and leave you unable to afford the home you purchased.
By making sure you check these items off your to-do list, you can confirm you are really ready to buy. It may take you a little while to get to that point after graduating from college, but waiting is worth it.
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