You’ve passed your last exams and walked across the stage in your cap and gown. You’ve quickly gone from a student to a professional working a full-time job. One of the first things on your mind is the roof over your head.
Many young professionals rent before they own. And, increasingly, others move in with their parents in order to save money. But that’s not possible for everyone, particularly young adults who relocated for work. There’s a third option: setting yourself up for homeownership—soon.
It might seem less expensive to rent than buy, but depending on your location and budget, monthly rent and monthly mortgage payments may be in the same ballpark. Consider that as of October 2024, the U.S. median monthly rent for a one-bedroom apartment is $1,534—and rising every year—while the median monthly mortgage payment is $2,200. Though the upfront costs of homeownership can be steep, you’re building equity instead of putting money in your landlord’s pocket every time you pay your mortgage.
And, yes, it’s possible to qualify for a home loan even if you have student loan debt, especially if it doesn’t make sense to put off homeownership until you’re debt free. Here’s how recent grads can prepare to get approved for a loan and start on their homeownership journey.
Map out your anticipated income
If you haven’t yet started working but you’ve locked in a job, you can use an offer letter spelling out your employment terms as proof of your income. If there are contingencies, you can still use the offer letter if you provide an email saying all requirements were cleared. Your income must be non-fluctuating and your start date must be within 90 days of the note date.
Determine your upfront costs
Without proper planning, upfront costs can set you back. These include your down payment, which is typically 20% of the purchase price for a conventional loan. However, you may be eligible for national and state first-time homebuyer programs and tax breaks. These programs may require as little as 3% down, though they do require mortgage insurance.
You’ll also have to pay closing costs, the additional fees associated with the mortgage, and you’ll need reserves—usually six months. Then factor in ongoing costs, including monthly mortgage payments, property taxes, and insurance. Based on your parameters, a mortgage loan officer can help you map out a savings plan, and help determine when you’re ready to buy.
Strengthen your credit
A good credit score can help you get the best interest rate on a loan, saving you thousands of dollars in the long run. You can get a free credit report from credit bureaus Experian, Equifax or TransUnion, and check for any errors or inaccuracies that could be dragging down your score.
To make sure you have strong credit, you should:
- Pay all of your bills on time and avoid taking on additional debt
- Maintain a low credit utilization rate
- Limit how often you apply for new lines of credit
At First American Bank, we want to show you that it’s possible to buy a house and build equity instead of facing ever-increasing monthly rent. Reach out to one of our loan officers, and get closer to your dream home.
