by Maurie Backman | Published on July 30, 2021
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Should you purchase a home as a new graduate or wait?
Many people who buy homes do so in their late 20s, their 30s, or even their 40s. The reason? They need to wait until their personal finances are in order, and that can take years. Plus, to buy a home, you'll generally need funds for a down payment, and it's hard to come up with that money when you're new to the workforce.
But what if you somehow manage to graduate college with a pile of cash sitting in savings? If you received scholarships or had a family who paid for your education, and you worked throughout your studies, then it's feasible that you might graduate with enough money to buy a home right away. And that way, you won't have to spend years throwing money away on rent.
But is buying a home right out of college a good idea? Or are you better off waiting?
There are some universal benefits to buying a home -- tax breaks, stability, and the opportunity to eventually own an asset that might gain a lot of value over time. The sooner you buy a home, the sooner you'll enjoy those benefits, which is why purchasing a place of your own right out of college could make a lot of sense.
Also, there's something to be said about planting roots and settling down in a corner of the country you like living in. When you rent, there's always the risk that your lease won't be renewed and you'll have to relocate to a less ideal city or neighborhood. When you own a home, as long as you pay your mortgage and property taxes, you can't be kicked out.
On the other hand, there are certain considerations to think about if you're contemplating buying a home right out of college.
First, when you're new to the workforce, it's hard to know what path your career will take. You might take a job out of college only to realize you hate working in that particular field. But what happens if a great job opportunity presents itself 300 miles away? At that point, you may be stuck turning it down because you're tethered to a home you own.
Another thing to consider is that if you're brand new to the workforce, you may not have the longest credit history. And as such, you may not have such a high credit score. The lower your credit score, the higher the interest rate you're likely to get on a mortgage. So it could pay to wait until your credit history is more established before applying for a home loan.
Finally, buying a home means taking on a lot of financial responsibility. If you're not really used to managing your own expenses and paying your own bills, you may want to rent a home for a year, get into that practice, and then buy a place of your own.
Buying a home is a huge undertaking at any age, but when you're young and straight out of college, it can be overwhelming. On the other hand, there's something to be said for not having to waste money on rent. And if you buy a home in your early 20s, you could easily be mortgage free by your early 50s with a 30-year loan. If you wait until you reach your 30s to buy a home, you might still be making mortgage payments in retirement.
Ultimately, buying a home right out of college could work out well for you. The key is to consider the pros and cons before making your decision.
Chances are, interest rates won't stay put at multi-decade lows for much longer. That's why taking action today is crucial, whether you're wanting to refinance and cut your mortgage payment or you're ready to pull the trigger on a new home purchase.
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