Here’s How College Students Can Begin Their Preparations As Aspiring Homeowners
According to Pew Research Center’s insights on housing affordability, the availability of affordable housing is a major problem for a growing number of Americans, particularly younger generations. In a 2021 survey, 70% of Americans said that young adults have a harder time buying a home than their parents’ generation did. A variety of factors have put up financial barriers for potential homeowners: incomes haven’t kept pace with housing costs and housing construction slowed down — leading to more people crowding in rented apartments or living in multigenerational homes with relatives. This is the reality that most college graduates will have to face once they leave school. While becoming a homeowner may seem like a faraway dream, it doesn’t necessarily have to be the case. Even while you’re still a student, you can prepare ahead to become a homebuyer by improving your financial profile. With the help of My Home Pathway’s algorithm and recommendation engine, we can assess your current qualification status and deliver guidance to put you on the path to homeownership before graduation. Here are three ways to do this:
Learn about mortgages
A mortgage is a loan used to purchase a home, where a borrower agrees to pay a lender with regular payments over time. As a college student, it won’t be easy to get a mortgage without a stable income. However, you can spend your time researching your options. There are often mortgage programs designed for first-time homebuyers, as well as unconventional loans insured by the federal government, all of which are more affordable for younger buyers. You’d also want to monitor interest rate trends. Fortune’s article on US home prices and mortgage rates reported that the average 30-year fixed mortgage rate has climbed from 3.11% to 5.11% in recent months, which isn’t great news for struggling homebuyers. Higher interest leads to additional hundreds of dollars in monthly payments, so keeping track of the rates allows you to be savvy. Moreover, with My Home Pathway’s customized Financial Literacy quizzes, we can teach you the rules of the game and empower you to take control over your personal finances via our app.
Build your credit score
Before you can get a mortgage, lenders will look at your credit score to determine the loan amount. Credit scores are numbers ranging from 300 to 850, which gives lenders a sense of your ability to pay back a potential mortgage; the higher the number, the better the score — and possibly the interest rates on your loan. A good credit history means you make full, on-time payments on your credit card bills. Stanford University’s findings on credit risk notes that having a “thin” credit history can lower your score, because banks and lenders would prefer more data to work with. Unfortunately, this means that having delinquent payments from years ago can cause a lot of damage to your credit score, so you should pay bills on time. Some of the things a college student can do to boost their score are making regular monthly payments on your car or rent and utilities, with an active credit card in your name. You can also use the My Home Pathway app, which has recently partnered with Self Financial for their Credit Builder Accounts; here, you can build up both credit and savings by the time you apply for a mortgage.
Save and invest your money
If you’ve only ever held internships of low-paying jobs, odds are slim that you have thousands of dollars tucked away for a down payment by the time you graduate. The good news is, college students have the advantage of time when you put your money in a high-yield savings account or in an investment. Maryville University’s feature on college investment tips highlights that you can easily accrue compound interest at a young age. You also have more room to make mistakes and take risks, compared to older investors Setting aside $10 or $20 every week will be enough to begin. Look into index accounts, traditional and Roth IRA, or certificates of deposit to start safely. The key here is not to quit; investing can be scary because of risks, but you’ll learn and build good financial habits for the rest of your life. In part, this is what My Home Pathway aims to do. We’ll evaluate your bank and credit information to produce a Home Readiness Report, so you can see how to improve your personal finance style. We discussed in our post on ‘The 10 Financial Mistakes You Might Be Making’ on how essentially, the best way to prepare for anything is to have a plan. Even if you’re still in college, it won’t hurt to start setting a budget for yourself to stick to and mapping out potential homebuyer expenses. Unsure where to start? The My Home Pathway App can help you assess your current financial profile, and advise you on your progress. Download the app today to learn more.
Written exclusively for Myhomepathway.com