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I’m a college student who’s about to graduate. Once I get settled into a job, I plan to move out of my parents’ home (I graduate a year from now, and it will take at lease 6 months to find a job). Depending on the security of that job, I will likely move out with my eventual spouse and live as inexpensively as possible, while paying back student loans and trying to save money.

So far, I’d say I’m good at budgeting and living modestly. However, I know next to nothing about buying long-term investments, such as a home or a car. The only car I ever had was purchased with cash for $ 1500. It wasn’t the best investment, but it was all I could afford at the time. My family has always had bad credit (accrued from before I was old enough to even be aware), so I’ve never seen a credit card used by any of my family members. And my parents lost the only home they ever tried to own. The down-payment for it came from my mother’s inheritance; not to mention, the house was poorly researched, and they lost it due to my father whimsically quitting his job and overestimating his ability to find a new one. Alcoholism and domestic dysfunction added to the problems in that home. I was only a preteen then, and sure didn’t understand the mechanics of foreclosure.

So, as a young a person with little knowledge and advice from the people close to me, where can I gather realistic advice and research about home-buying? Ideally, I wish to live debt-free. But I don’t know if buying a home works like buying expensive furniture or a car, or if you HAVE to take out a mortgage. Can’t I set up some kind of financial instrument or savings that will allow me to save for a long time until I have enough for a down-payment, and then just make payments until my home is paid off? Or will I have to pay interest, as well as a principle, no matter what? I already have student loans to pay back, so I don’t want to keep accruing debt. Also, I want to own a home one day so that I have a place to live when I’m too old to work anymore. I just don’t know anything about buying a home, and I don’t want to make the same mistakes my parents made.

Please keep in mind that my goal is security for the future versus wealth-building.
Note: Is a mortgage my only option? I really don’t want to owe interest. I just want to make payments. Is that possible?

2 Thoughts on Questions about home-buying?
  1. Reply
    Venita Peyton
    June 26, 2012 at 3:35 am

    You’re on the right track. By all means graduate first and then (prayerfully) find a job that you can be excited about.

    If you need another vehicle, buy it used after being checked out by a mechanic.

    Yes, move out. Rent the very CHEAPEST, but safest apartment (or house) that you can, so that you can save money. Realize, however, that cheap rent sometimes means minimally insulated walls – which makes your utility (electric) bill higher.

    You’ll need at least 2 years work history (and middle credit score of over 650) to get a mortgage. Even when you’re ready to purchase a home, try not to get the Taj Mahal. A modest, 3 bed, 2 bath home that can be resold in 3-5 years is much better than a half million dollar home that sits for a year.

  2. Reply
    Alex
    June 26, 2012 at 4:05 am

    You certainly can make payments into savings until you have enough to buy a house for cash, but it may not be the best decision. I think it’s a great idea to rent somewhere before buying a house to get a feel for living on your own while having someone else responsible for maintenance and the cost of major repairs – a little bit like training wheels on a bike. Money paid toward rent gets you a roof over your head, where part of mortgage payments can build equity in a house.

    Buying a house is a few steps ahead of where you are right now. I would focus on getting a job, saving at least 3 month’s expenses (based on your budget for the new place) before moving, then continuing to manage your finances responsibly while paying down that student loan. Check out finance expert websites like Suze Orman or Dave Ramsey and research home buying online while you work toward being financially prepared to buy a house (cash or mortgage). I also like mint.com for budgeting.

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