The Complete Guide to Buying a Home After College

Posted by Ryan Fitzgerald on Monday, May 3rd, 2021 at 12:24pm.

Buying a Home After College

Are you a recent college graduate interested in buying a home? Even if the ink isn't dry on your diploma yet, taking on homeownership could be a good move. You can build equity and set yourself up for a bright financial future.

You'll also gain a comfortable place to decompress at the end of the workday. But the benefits — and responsibilities — don't end there. Read on to find the complete guide to buying a home as a recent college graduate!

College graduates holding their diplomas and getting ready to graduate from university while buying their first homes and overcoming the challenge of student loan debt

The Unique Challenges of Being a College Grad

When you're young, you could face some disadvantages as a homebuyer. You won't have the same work history or experience. So you'll need to take stock of your financial picture first. First-time home buyers have many advantages available to them when it comes to first-time home buyer mortgage programs. These programs are designed to help people buy their first home. There are a lot of reasons you should buy real estate when you're young!

Minimal or No Credit History

You build a credit history by making big purchases and regular on-time payments. But when you're barely into your twenties, you won't have many big purchases to your name. This can impact your credit score — and your ability to secure a loan. Credit Karma is one tool that can really help you keep an accurate understanding of your credit score.

Making monthly payments on a car could help your credit status, for example. Having an active credit card in your name can help, too. And if you lived in an off-campus apartment and made rent and utility payments, that should help your score.

Minimal or No Savings

If you've only held internships or low-paying jobs, you won't have a lot of savings. Some housing lenders may require a 20% down payment. For a $150,000 house, that means you'd need to have $30,000 saved up.

You can start to build your savings once you start working. Stash your money in a high-yield savings account. And consider living with family or friends to save money. Once you have enough you are ready to start your home search!

Moving, Marriage, or Grad School on the Horizon

As a recent college grad, you may be more transient than someone twenty years older than you. Are you dreaming of grad school in a few years? Or are you hoping to live in a variety of places?

These are all factors to keep in mind when you start exploring homeownership. Maybe you're looking to move up within your current organization or stay close to family in the area. In those instances, buying a home could be the right choice. Oftentimes you may even find that new construction homes are the way to go as the barrier to entry can oftentimes be easier than purchasing a resale.

The Financial Benefits of Homeownership 

As a young homeowner, you stand to gain a lot from owning a home. You'll build equity and credit. And you'll learn how to budget for home repairs and updates. The challenges of buying a home as a recent college graduate are similar to that of buying a home as a government employee. These challenges can be overcome if you find a great real estate agent.

Build Equity

Your home will have a value assigned to it, and you'll be making mortgage payments. The difference between the home's value and what is left in your mortgage is the equity. In other words, if your home is worth $100,000 and you have $60,000 remaining in your mortgage, you have $40,000 worth of equity.

When you make rent payments, you don't build equity. By contrast, owning a home can build your net worth. And by making timely mortgage payments, you can build your credit, as well. One of the best ways to become independently wealthy is through real estate investing. One of the best things you can do is buy a home in a great location that is growing fast like Raleigh and Charlotte.

Save Money in the Long Run

Owning a home means saving more money over time. In some cases, the cost of a monthly mortgage payment may be less than the cost of rent payment. You won't need to rent extra storage space or fight for a parking space in your own home, either.

You won't have to deal with increased rent payments, as well. A landlord can ratchet up rental payments whenever they want to. But with a mortgage, you'll have a clearer sense of your financial picture in the months ahead.

Gain Tax Deductions

Once you graduate into the real world and land a job, you'll have to pay taxes. A big benefit of owning a home is that you can deduct mortgage interest when filling out your returns.

In your first year of homeownership, you may be able to deduct portions of the closing costs, too. Feel free to claim origination fees, which are included in closing costs. And for one more benefit, you can deduct your property taxes

How to Approach Buying a Home as a Recent College Graduate 

When you're hoping to buy a home, you need to start with a clear budget. Look at your monthly paycheck and develop a system where you can maximize savings! Whether you're graduating from a local university or one in a different state a lot of the fundamentals of buying a home are the same anywhere you love. Many folks find themselves relocating after school so you'll want to be sure to find a great place to live.

Hammer Out a Budget 

Planning a budget means finding a way to live within your means. Consider using an app or spreadsheet to track your expenses each month. Account for utilities, rent or mortgage payments, membership fees, cable, student loans, and more.

Aim to limit 30% of your gross income to housing costs. In other words, if you're taking in $3,000 per month from work, keep your rent or mortgage under $1,000 per month.

Our first house sign being held by two first time home buyers who have recently purchased and moved into their new home

Make a Plan to Put Money in Savings

When you're fresh out of college, it may be beneficial to live with family or a roommate for a while to build up savings. When you don't have to pay rent or a mortgage, you can pocket a lot more of your paycheck. If you're wondering how to save money for a downpayment start by reading this.

You don't have to make ramen your go-to meal, but do be frugal. Limit your spending on restaurants, movies, and other non-essential activities. 

Ask Family Members for Help

The down payment can be the biggest hurdle when you're buying a home as a recent college graduate. You may not have tens of thousands of dollars sitting in your savings account. And you won't have profited from the sale of a previous home.

Consider turning to your family for help with a down payment. Your parents may be willing to give you money. If you go this route, you'll need to work with your lender to verify a few things first.

Your lender will need proof of the relationship. They'll also need a gift letter confirming your parents' intent to give you the money. In addition, your lender may want to see a banknote or other indication of the money's source.

Understand the Role of Your Credit Score 

When you decide to pursue homeownership, you'll have an easier time with a better credit score. Lenders will look at your credit score when they determine a loan amount. There are ways to boost your score before you start talking with lenders.

What Is a Credit Score?

A credit score is a number ranging from 300 to 850 that will give someone a sense of your creditworthiness. The higher the number, the better the score.

A credit score uses a formula that considers details like your auto, credit card, or student loan debt. It will also factor in your bill payments, the accounts you have open, and available credit.

Lenders want to know that you have the means to pay back the loan. Your credit score is a concise way to give an impression of your financial picture.

Check Your Credit Score 

There are three main credit reporting agencies. They are Equifax, TransUnion, and Experian. You can get a free credit report from each of them each year.

There are some sites, like Credit Karma, where you can access your credit report and learn tips on how to improve it. Since these are considered soft checks, you won't impact your score in a negative way. 

You'll be more likely to see changes in your score if you wait a few weeks to check. This gives utility and credit card companies time to send reports or updates that will impact your score. There are ways in which you can improve your credit score.

Be Diligent with Monthly Payments to Help Your Score

Don't just let a stack of bills sit on your kitchen table. Make sure that you are paying them all in full by the deadlines. Setting up an online autopay may be your best to ensure timely payments — and a better credit score. 

Take Action to Improve Your Credit Score 

Since your credit score factors into your loan status, work to improve it. Do this in the months leading up to a home search. Then you'll be able to walk into a lender's office armed with a better score!

Maintain Lines of Credit

Open a new line of credit and keep existing ones. Opening a new credit card will provide another way of making on-time payments. And by maintaining existing credit cards, you'll establish older lines of credit.

Even if you have a credit card you barely use, don't close it. It's good to maintain existing lines of credit to demonstrate that you're responsible.

A happy couple who have just moved into their first home hugging one another with moving boxes in the background

Keep Your Credit Utilization Low

Credit utilization refers to how much of your credit card limits you're spending. Ideally, you want this number to be low — under 30%. The way to do this is not to spend much using your credit card!

The average American has over $6,000 in credit card debt.  You can set yourself up for a better credit score by not spending up to your credit limit. On top of that, pay off the debt in full each month.

Elevate Your Credit Limits

Your credit card company may be willing to boost your credit limit. Doing this gives you a higher ceiling for spending. This might seem like an invitation to spend more with your credit card, but don't do it.

Raising a credit limit can help your credit score — as long as you keep your spending habits normal. When your credit limit goes up, your credit utilization will go down.

Suppose you have a credit card with a limit of $6,000, and your balance is $2,000. That means your utilization rate is 33%. But if you raise the limit to $8,000, your utilization rate is only 25%.

Know Your Loan Options 

When it comes to getting a loan, your current financial picture may dictate the kind of loan you can get. But it's smart to know the differences before you head to the lenders.

What Are Conventional Loans?

Conventional loans are insured by private lenders. Most of the time, the requirements to qualify for these loans are strict. You'll need a credit score of at least 620.

A lower credit score means that you may pay a higher interest rate. But you still may be able to score a down payment as low as 3%. The catch is that you will need to pay private mortgage insurance if you put down less than 20%.

Fixed-Rate vs. Adjustable Rate Mortgages

These are the two main mortgage types. Choosing the right one for your needs means considering how long you'll live in the property. You'll want to evaluate interest rate trends — and how much cash you have saved up.

With fixed-rate mortgages, your interest rate remains the same. You'll pay more toward the interest on the front end, and more toward the principal over time. These loans are attractive because they provide predictable monthly payments. 

With adjustable-rate mortgages, your interest rate can shift depending on market trends. This might mean that you end up paying more at some point during the repayment process. Know the adjustment frequency before you sign on for one of these loans! 

Explore Unconventional Options

If putting 20% down isn't in the cards, then an unconventional loan may be the right move. Having a lower credit score makes these loans a solid option, too.

Unconventional loans are insured by the federal government. FHA, USDA, and VA loans are among the strongest choices for first-time homebuyers. You won't need to put as much money down on the front end!

First-time Homebuyer Loans May Help 

Unconventional loans often turn out to be the more affordable option for younger buyers. There are several federal programs aimed at helping first-time homebuyers. Through these programs, you may be able to make a much smaller down payment — if at all. 

Check Out FHA Loans

The Federal Housing Administration insures FHA loans. If your credit score hasn't crested 600, you can still qualify for one of these loans. And you may be able to put down as little as 3.5%!

You will, however, need to pay mortgage insurance to cover losses if you default on the loan. You'll need to verify employment for the past two years. And you'll need to ensure that the home is where you plan to live — not a rental property. 

Try a USDA Loan

The U.S. Department of Agriculture backs USDA loans. These are excellent choices for buyers with low incomes. While you don't need to work in the agricultural industry, you'll need to commit to living in a rural area.

You'll also need to have a reasonable credit history and demonstrate a reliable source of income. At the same time, your income will need to be lower than the low-income cap in the region where you're living. With USDA loans, you won't put any money down.

VA Loans Can Help Military Personnel 

Did you serve in the military or are you an active member? If so, a VA loan from the U.S. Department of Veterans Affairs can provide the help you need. Spouses may qualify, as well. 

These loans don't require a down payment. And on top of that, you won't need to pay mortgage insurance. With conventional loans, you will need to pay mortgage insurance if your down payment is under 20%. Here's a great guide if you are moving with the military.

Getting Approved for a Loan 

When you've researched the loan types, what's the next step? You'll want to meet with a lender. And you'll want to do that before you get too deep in the house-hunting process.

Start with Pre-approval

A good plan is to seek pre-approval first. Especially if you've never bought a home before, you might not have a clue how much you can afford. Pre-approval provides you and the seller a sense of how much house you can buy.

With pre-approval, a lender will look at your credit score, income, and other assets to see what loans are best. You'll learn how much money the lender can provide, as well as the rate.

Bank statements and investment account statements are among the documents you'll need to provide. You'll also need to show pay stubs and W-2 statements to verify your employment.

Keep in mind that pre-approval doesn't always mean approval. But it does give you a useful document about your financial standing that you can show a real estate agent. And it helps you focus your search!

Follow up with Approval

The next step is pursuing approval for a mortgage loan. It's helpful to shop around since not every lender will give you the same offer. Each lender will have different fees and terms, too.

Once you've found the home you want, that's when you submit a mortgage application. You'll need to submit tax returns, bank statements, and investment return statements. Count on submitting pay stubs and other examples of employment history, as well.

The lender's underwriting group will make the final call on whether you can get a loan. They may ask for more information from you to do this. If approved, they'll tell you the loan total.

College graduates holding their diplomas standing in a line on graduation day with big smiles on their faces

What to Look for in a House 

When you're purchasing a house as a younger buyer, make a list of what you need. Know your short-term and long-range plans to help focus your options. And keep your price range manageable!

Consider Your Commute

Buying a house further from your workplace translates to extra miles on the road — and more time out of the house. It's a better idea to limit your geographic radius to one that keeps your commute time short. You'll save on gas expenses and wear and tear on your car. Again, this goes right back to the importance of location when buying a home.

Start Small

You don't need to purchase yours forever home on the first go. The luxury home will come later. The better choice is to start with a small starter home.

Could you live in a home of 1,000 square feet? A home this size is similar to that of a two-bedroom apartment. But you won't need to share walls with a neighbor!

Find a Neighborhood with Upside

Moving to an established neighborhood may sound fun, but you'll get less for your money. What are the neighborhoods on the rise? Pinpoint the areas of town that are poised to become great.

Choose to invest in a neighborhood that's under revitalization or development. Doing this could help your home's value grow over the years. You may be able to find more affordable homes, too, if you don't mind a little sweat equity.

Look for Red Flags

These are things your home inspector is going to look for. Are the shingles curling up on the roof? Is there evidence of water damage in the basement? These are warning signs that you may inherit some significant repairs if you buy the home. If you are wondering if a home inspection is worth the cost, the answer is... yes!

New septic tanks can cost you more than your downpayment!  When you've invested in a new home, you don't want to incur additional big expenses right away. Don't let cute curb appeal distract you from significant structural issues.

There are strategies you can use to negotiate repairs when purchasing a home.

Finding an Agent 

You'll want to enlist the help of a real estate agent during the home-buying process. They'll have the experience and understanding of the neighborhood to land you the best home. Here's how to choose the right Real Estate Agent.

Get Help with the Details

Buying a house involves a lot of paperwork and foreign terminology. Hiring a real estate agent gives you a knowledgeable professional who knows how to read contracts. They can gauge market conditions, too.

A real estate agent also will be well-versed in seller's disclosures, titles, and mortgage statements. Best of all, your real estate agent can draft a contract that protects your interests.

Your agent will try to buy you the most time for housing inspections. And they'll know how to read inspections, contingencies, and other critical documents. 

Negotiate the Best Deal on a Home

A real estate agent knows the housing landscape in your area. Because of this, they'll know about comparable homes and pricing trends. They'll also know the right negotiation tactics to try with the seller's agent.

You may even be able to learn about houses before anyone else. If your real estate agent knows your criteria and stays connected with colleagues, they'll be on the lookout for you. After all, they stand to gain a commission of around 5% if they find you the right home!

Save Time

The biggest reason to hire a real estate agent is that it saves you time. When you're trying to adjust to life out of college, you don't need one more big task on your to-do list.

Communicate with your agent so they know your housing preferences. Show them your loan pre-approval and they'll know the range of houses you can afford. Then let them do the legwork for you!

Balancing Student Loan Debt with the House Hunt 

Are you wondering if it is possible to buy a house while paying off your student loan debt? Yes, it is possible. But you'll need to work on increasing your income while reducing your debt no matter where you are in life. For many, the affordability of a city can play a large part in their ability to afford a home. This is one of the reasons people move to a place like Raleigh, or North Carolina in general. Other great options of places to move to include states like South Carolina, Georgia, Florida, Virginia, and Tennessee. People are relocating to the southeast because there are high-paying jobs with the affordability of real estate.

Work on a Better Debt-to-Income Ratio

Lenders will use your debt-to-income (DTI) ratio to determine how much house you can afford. Debts refer to car loans, student loans, or credit card debt payments that you need to make. The more debt you have, the higher your ratio will be.

Most lenders want your DTI to be no more than 36%. Fortunately, there are ways to improve your ratio.

For starters, you can add another part-time job or side hustle to increase your income. Drive for a ride-share or deliver groceries. Do some tutoring or dog walking.

Adding even a few hundred dollars each month can help lower your DTI. And this can make you more attractive as a loan candidate.

Enroll in the Right Repayment Plan

Another way to improve your DTI is to change your student loan repayment program. For instance, enrolling in an income-driven repayment plan will help lower your monthly payments.

If you work for a non-profit or government agency, you may be able to pursue student loan forgiveness. Through this specific type of income-driven plan, you can eliminate your loans after ten years of work in this industry,

As a more aggressive step, pay down your loans before buying a home. While you might have to hold off on building equity, you'll wipe out a considerable debt. 

The Process of Due Diligence 

During the period of due diligence, you'll assess the physical state of the property. You'll also learn more about the value of the home. Ultimately, what you learn can help shape negotiations — and whether you stick with the property.

What is Due Diligence?

Due diligence is a time frame that stretches from when you enter into a contract to when you close on the house. Your contract should tell you how long the period of due diligence lasts. It can range from a week to a month or longer.

The seller may offer a list of disclosures. Disclosures are the repairs or other issues that the house has faced over the years. Knowing the disclosures can inform what you choose to investigate during due diligence.

Two happy first time home buyers who have purchased their first house immediately after graduating from college and holding the keys with real estate agent in the background

What Happens During a House Inspection?

Home inspections are a normal part of due diligence. A home inspector will look at the heating, cooling, plumbing, electrical system, and appliances. They will also check out the roof and investigate the state of the kitchen appliances.

Then the home inspector will summarize their findings in a report. If the home inspector indicates a number of minor repairs, you may be able to ask the seller to cover these. But if the repairs are significant and costly, you might want to walk away from the house.

Plan on Other Inspections

It's also wise to inspect the home for other issues, like radon gas or lead-based paint. These are potentially deadly problems that you'll want to fix right away. The last thing you want is bugs in your house that are destroying the foundation!

And your lending agency will have someone appraise the home. The appraiser will look at the lot size, neighborhood, and square footage. A lower appraisal may force the seller to lower the price of the home.

Understanding the Extra Costs of Homeownership 

Buying a home requires more than making a down payment and monthly mortgage payments. It's critical to set aside money to cover the additional costs.

Set Aside Money for Closing Costs

When you're at the end of the home buying process, you'll encounter closing costs. Closing costs can be up to 5% of the amount of your loan. 

Closing costs include homeowners insurance, home appraisal fees, and loan origination fees. You also might see attorney fees and escrow charges. And expect private mortgage insurance fees if you make a lower down payment.

Have a Maintenance Budget

What if the HVAC system shuts down or the basement floods? Dealing with repairs is a normal part of homeownership — and you need to be prepared.

Have money in savings earmarked for these issues. You may only spend a few hundred dollars per year on a new construction home. But for older homes, you may need to address faulty roofs, cracked foundations, or drafty windows.

Gather the Right Documents

You'll want to learn about homeowners insurance options. Look at a number of different plans. And check to see what's covered related to liability, theft, or weather-related issues.

Does the home have any homeowners association (HOA) fees or requirements? Make sure you're up to speed on what's expected of you when you move into the neighborhood.

Are You Going It Alone?

If you're newly married or considering starting a family, plan for your financial future. You may have additional mouths to feed that cut into your monthly savings. Or if your partner loses their job, you won't have as much cash.

Look into renting a room in your home to help with mortgage costs. If you're venturing into solo living for the first time after college, you may enjoy having the company, too! Maybe you're a single parent and we have a great guide for you to learn the ins and outs of what's available to you.

Investing in Your Future 

Buying a home as a recent college graduate is a big undertaking. Work on saving money, looking into loans for first-time homebuyers, or asking family members for help. The effort is worth it, though, since you'll set yourself up to build equity and a better future.

Buying a Home After College Doesn't Have to be Hard!

Whether you're looking to buy a home here in Durham after graduating from Duke University or anywhere in the country finding the right local Real Estate Agent will be the best thing you do in the home buying process. They will help guide you through to a successful real estate transaction. It's what Realtors® do for buyers! They represent you as your buyer's agent throughout the purchase even after you go under contract.


Ryan Fitzgerald Raleigh RealtyHi there! I'm Ryan Fitzgerald, a REALTOR in Raleigh-Durham, NC and the owner of Raleigh Realty. Chances are you and I share a similar passion, Real Estate! I also have a passion for building businesses, working out, inspiring others, technology, sports, and people. Connect with me on Facebook and Instagram!

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