buying a home
When I graduated college I did what most graduates do, I went apartment shopping with a college
friend. We found a nice apartment centrally located in St. Louis and we signed a one-year lease with a
monthly rent total of $700. My half was $350 plus half the utilities. We did that for a year and then
rented another place with two other guys so we split the rent into fourths and my fourth was $350 plus
¼ of the utilities. A great deal for me, I moved into a bigger place in a nicer neighborhood and was
paying a little less money. I continued to rent for two more years where I paid $750 a month for an
apartment in Los Angeles. Over the four years I rented I paid a total of $26,400 dollars on rent and
nothing to show for it.
During those fours years, another college friend of mine that graduated at the same time did not rent
an apartment but instead bought a three-bedroom house. He lived there with two other buddies and
charged them rent. It was a win/win situation because they needed a place to live (which most
graduates do when they graduate), and he wanted someone to help pay the mortgage. He paid
$150,000 for the house making his mortgage, including insurance and taxes, $900 a month. He
charged each of them $350 (which was the going rate for rent) plus 1/3 of the utilities. The renters
loved it, because it was a house and not an apartment, they didn’t have to sign any long-term leases
and they were great friends with the owner of the house. The owner loved it because he lived with two
buddies, and he had other people helping him pay the bills to build equity in his house. Now the owner
had to pay $200 a month plus 1/3 of the utilities but he knew he had an asset on his hands and a great
investment. After four years he had paid $9,600 in “rent” for his own house and built $48,000 in
equity. Needless to say he was way better off than me. Is it really that easy? In the next few paragraphs
we are going to show you how easy it really is.
We believe one of the best things you can do at an early age is begin building your net worth by buying
assets, such as a house. Most recent graduates don’t understand how much farther ahead you’ll be
financially by owning your own house. The “investment” in owning a home pays off in a couple of
ways. First, you will build equity in the home by paying down the mortgage. Second, the house will
appreciate over time allowing you to sell it for more than you paid. The fact is, most of your friends
need a place to stay so if you can work out a rent payment that is comparable to the going rate of rent
in your area, you’ve got others growing your net worth for you.
Here are the steps needed to buy a house. We will break them down one-by-one so when you are
finished with this article you will have everything you need to begin the process. Obviously, where you
live will determine the size of house you can afford and what rent you can charge. For the sake of this
article we are going to use $150,000, which would be an average price in most college areas. Keep in
mind some places will be higher and some will be lower.
The steps are:
1. Secure a down payment and money for closing costs
2. Find a loan/get a pre-approval letter
3. Find a real estate agent and then a house
4. Find insurance
5. Close on the house
6. Find renters
7. On your way
Secure a Do wn Pay ment
There are many ways to buy a house these days and sometimes you can get away with buying a house
without a down payment. However, most of the time, you will need some sort of down payment to buy
a house. Once again depending on where you buy the house, you should try to at least have 5% down.
If you can get 10% you are even better off. On a $150,000 house you are going to need $7,500 to
$15,000. That might seem like a lot of money, but once again you have to look at it as an investment
not a cost. It would be similar to putting that money into a savings account. Also you want to figure
roughly $2000 for closing cost, some will be higher and some will be lower.
Where do I find the funds? There are multiple places to find the funds. Your parents or grandparents
can be a great resource. You might have some money set aside for you in an account just for this very
thing. If those avenues don’t work, you can save for the down payment and make buying a house a
goal in the next 24 to 48 months. Which means in reality, if you can’t do it while in college, make it a
goal to buy a house as soon as possible after graduation. Don’t forget that these funds are to buy an
asset and grow your money, not to blow on a trip to Cancun!
Find a Loan /P re-a ppro va l Lette r
Finding a loan officer can be tricky if you don’t know what you are doing. Make sure you do your
homework on this one. I had a really good friend that was a loan officer, so I had no troubles. If you
know a loan officer, or know someone that does that is the best way to go. Knowing a loan officer is a
great way to make sure you get the best deal on a loan, and to help cut your closing costs. My loan
officer helped me cut closing costs to a total of $1000 on a house over $200,000. After you find the
right loan officer then they can help you determine how much you can afford to put down, how much
you can afford to pay monthly, and ultimately how much house you can buy. Also at that time you will
find out if will need a co-signer to help you get the loan or a better interest rate. Your relatives are a
great source for co-signing, preferably parents.
Once everything is determined the loan officer will then give you a pre-approval letter, which means
that when you find a house the sellers know you are a serious buyer, and have the funds to purchase it.
Most sellers love to see a pre-approval letter because the process of buying/selling a house, writing the
contract, getting an inspection, and appraisal right up to the closing can be a lengthy process. So a pre-
approval letter tells the sellers that they are not wasting their time.
Finding a Rea l Estate Agen t and The n a House
The first thing everyone needs to realize is that real estate agents get paid buy the sellers not the
buyers, which means you pay ZERO for an agent to help you find a house. Finding a real estate agent is
much like finding a loan officer. If you know one the better off you will be. You also might want to make
sure they are familiar with the areas you are looking to buy your house. A good real estate agent can
make all the difference. When I was buying my first home, I was traveling a lot and my agent really took
the majority of the process into her own hands. She found insurance for me, she found the inspector
and actually did the inspection with him, she was there during the appraisal, and the best part was she
even did the walk through. Some people think it is hard to find the right agent. I say that if you think
hard enough you have one in your circle of influence right now.
After you find an agent it is now time to go out and find a house. Finding a house can be frustrating at
times, but when you finally settle on a house, it is the best feeling in the world. Some people take
months to find a house; I found one in three days. You have to find a house that you want to live in,
that has good resale value, and that is big enough to house your renters. Since you already have a pool
of renters to choose from location for renters isn’t that important. Location is important however for
resale. For example, you want to find a house in a location that is livable, meaning not at a busy
intersection, one that backs up to a major highway, one that is in a bad neighborhood, etc…
To cut down on “house hunting” you should first list your criteria, how many bedrooms and
bathrooms? Do you want to be in a specific geographical region? How big of a yard do you want? Do
you need a garage? If so, how many cars do you need in the garage? What type of house? Two-story,
ranch etc..? Your agent can help you answer all these questions.
Finding Insu rance
Once again knowing someone in insurance can be a huge advantage. You might want to ask your
parents or relatives if they know anyone. By the way, asking your parents or other people for advice and
help through this whole process is a great idea. Find someone who has experience in going through
this process, and let them also tell you what to do and what not to do, as you are going through the
steps.
If you don’t know any insurance agents the best thing to do is to shop around for the best coverage
and rate. Your real estate agent can help you with this process. Remember your agent is there to help
you throughout the whole process, not just to help you find a house. Once you find insurance you will
want to make sure to escrow it (we will talk about this in the next section)
Close on the House
I don’t want to get too in-depth with closing, but I think it is important to touch on some things to
keep in mind. Once again, your loan officer and real estate agent will help walk you through the
process. You will need to find a title company, open your escrow account, and make sure you are fully
funded with down payment, closing costs, and your loan.
Your escrow account is an account that keeps your taxes and insurance in it. Every month you pay
$1000, and to break that down $150 goes towards your taxes and $50 goes toward your insurance. That
money goes into your escrow account and is used to pay your taxes and insurance at the end of the
year. You don’t have to roll your taxes and insurance into your payment, however it is easier when the
time comes to pay up. Either you have the escrow account that takes care of the bills or you write two
huge checks, your choice, but I strongly suggest the escrow account. Also, rolling everything into your
monthly payment means that your renters not only help you pay the mortgage, but also help you pay
your taxes and insurance. See how this works!
All the paperwork needed at the time of closing will be provided by your loan officer and agent. Get
ready to sign your life away, but remember; this is an investment and you are buying an asset not a
liability!!
Finding Rente rs
You are at the best age to find renters and you have them all around you – friends at college, friends
from home, and your fraternity/sorority members. Almost everyone in your age group needs a place to
live and they all rent!! You have your pick and won’t get stuck renting to someone you don’t know.
When you pick the people to live with you keep theses things in mind:
1. Are they good for the rent?
2. Are they compatible to your living style?
3. Will they rent for a year or more?
4. Do I want to live with this person?
Make sure you answer all these questions honestly to yourself before approaching your renters. You
don’t want to ruin a relationship by living with someone that may be challenging. You also don’t want
to get stuck paying extra because they won’t pay their rent or share of the utilities. Finding them should
be easy – settling on one, two, or three might be a little more difficult.
On Your Way
After you have moved in, now you are on your way to building equity and your net-worth. This is the
smartest thing you can do at your age, and I promise you, that you won’t regret it. Just make sure to
collect rent and bills every month, pay your mortgage on time, and keep your house clean and updated.
If you do this, years from now, when you sell it, you will have all that money and another down
payment on another house. Good luck and happy house hunting!!!!