I am a first time home buyer and a 22-year old student who has been pre-approved for a loan to purchase a home. I have about $10,000 in savings and don’t want to spend all of my savings to get into a house. Do you know of any incentives or deals that could help me get into a house without spending all of my savings?
HTA Response: We love that your first instinct is to try and preserve your capital. As a student, you’ll have plenty of bills going forward. We’d like to give you some real estate advice now that you have money saved for a home and want to move forward and buy in this real estate market.
Let’s tackle your question. First, you don’t have to spend all of your savings, but what you buy, how much you spent, and how you finance the property will have a direct impact on how much of your cash you spend to put down on the property and close on the mortgage.
For example, if you can qualify for a special first-time buyer program, you might be able to get a grant to match your down payment dollars. FHA also has special programs for home buyers who make a successful offer on a HUD home, which is an FHA foreclosure. Some HUD homes can be purchased with as little as $1 down. If you’re a teacher or a police officer, you may be eligible for special down payment and loan terms.
If you’re in college or graduate school, you’ll likely be thinking about what’s going to come next. You may have significant student loans and may not make much in your first year or so out of school.
Timing is important. Do you know where you’ll live for the next 5 to 7 years? If you buy a property now and have to sell it within a year or two, you probably will lose money on the sale. If you’re just starting medical school and will be at your current location for 5 to 7 years, it might make sense to buy.
But if you’re looking for a shorter-term purchase, kit would only make sense for you to own a home as a first time home buyer if you are able to buy something that will save you money on a month to month basis. That is, if you can own a home and your monthly housing expenses would be less than if you rented.
Given these factors, you should first consider how long you would want to stay in the home you might purchase, what your other financial obligations are as of now, what your expenditures will be over the next couple of years and whether you’d be better off renting for a while longer and increasing your savings.
With the amount of savings you have now, you’d probably have to use most or all of the $10,000 towards the purchase of a new home. And, while there might be local or state government incentives towards the purchase of a home for first time home buyers, those incentives may not outweigh some of the other factors you should consider in determining whether to buy or not to buy a home.
You can talk to some local mortgage lenders and mortgage brokers in your area and see if they are aware of any first time home buyer programs that might be right for you. These days most state and local budgets are rather slim and some of the money available in the past for people like you has evaporated and no longer available. If there are funds available in some programs, those funds go quite quickly to buyers that have lined up for the programs well in advance.
For the purchase to work for you over the long term, your debts should be rather low, you probably should have no credit card debt, your prospects of living in the home you purchase should be for a term of not less than five to seven years, you should continue to save over the coming years to replenish the $10,000 you will have spent on the deposit and closing costs for the home, and your monthly expenditures on housing should probably be around what you would spend to rent a home for the next several years.