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Ok, you’ve graduated from college, and finished 4 years of higher education and mastered the art of living the good life. Balancing classes and social life has been your prime focus. Now, hopefully, you have a job and are on your own. Like most young Americans, your first inclination is to flock to the nearest city, rent an apartment with 4 friends and try to extend “college” life as long as possible. Although it’s not a bad idea for your social life, it’s not a great idea for your financial future.
Owning a home is not only the American Dream, it’s also the single best way to assure financial success for yourself in the future. Simply put, renting an apartment, is like throwing money away every month. Realistically, it may not be possible to buy something your first year out of college, especially if you live close to a large city where prices have skyrocketed. However, it doesn’t appear that prices are going to come down, so the longer you wait, the harder it may become.
Interest rates, although they have gone up slightly, are still historically low, which means it’s a great time to buy. In addition to low rates, mortgage companies have become very creative with loan programs that help the first time buyer. For instance, you can now buy a home with as little as 5% down, on a $300,000 home or condominium, that’s only $15,000. (If you rented an apartment for $2000/month, by the time you paid your first months rent, security deposit and Realtor fee, that would total $7000.) Of course, you would have to qualify for the loan amount and there would be private mortgage insurance, added to your payment until you get the equity built up to 20%, but regardless, you would own something!
Here’s how it works:
If you purchased a home or condo for $300,000 and put 5% down, your monthly payment would be approximately $1800 per month (assuming a 6% interest rate). On top of that you would have to pay PMI insurance, your taxes and insurance. But keep in mind, the interest on the mortgage, virtually your entire payment for the first several years, and the taxes are deductible. As a single person, every deduction you can obtain is crucial.
So for a couple of thousand dollars a month, you would be on your way to owning property. If you are lucky enough to find something with more than one bedroom, you could even rent out a bedroom to a friend, and lower your monthly cost.
Hopefully, as your income and savings grow, you take the equity out of your first home, rent it out and buy your next property. History has proven, that real estate continues to be the best investment around. Taking the first step is a scary one, but in the long run, it pays off tenfold. Trust me, I speak from experience. I started off with a $147,000 2 family home and now I own two 2 family homes which I rent out and a single family home that I hope to raise a family in. Choosing a great location is key. Prices may be higher, but they also increase at a higher rate.
Happy house hunting.
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