Isn’t it interesting that one of the most important things we’ll do in our life is a buy a home yet we were never taught about the process in school? I mean sure, I learned about APR’s, interest rates, and amortization in one of my college math courses (which was lucky) but I still didn’t know how to apply any of that information in real life. Plus I forgot how to use all of those equations that day after the class ended. Realistically, the industry of real estate, whether you are buying, selling, or renting is way more complex than just a few equations. Here are 5 things that I wish I learned in school that can prepare you for figuring out your housing situation once mom & dad cut you off.
1. CREDIT is King
So a lot of people say “cash is king” which is true in most situations. However, you can have cash but if you don’t have credit or if your credit is bad then you are still in an unfavorable situation when it comes to getting a mortgage. When you apply for a mortgage the 2 major components are good credit & a good, consistent job. Yes, you will need money for a down payment but there are so many programs out there nowadays that you could possibly qualify to put as little as 1% down. Just to put in perspective for you; if you are buying a home for $200,000 – you would need $2,000 as a down payment…
Tips for good credit:
- Take out credit cards but only use them for necessities and pay a majority of the balance each month.
- Never miss or be late on a payment
- Keep a small balance on your cards (credit card companies don’t like when you don’t have a balance because then they don’t make money on interest so although it won’t ding your credit, it won’t improve it either)
2. Renting could be better than Buying
If you are fresh out of college and don’t know where you want to live or what you want to do with your life, don’t buy a home. Buying a home will put you into a 30-year commitment that may or may not benefit you if you go to sell before then. You may say “well if I’m paying $1500 a month to pay someone else’s mortgage I might as well buy.” Yeah, you are paying for someone else mortgage but you’re also reaping all the benefits and conveniences of living without homeowner responsibilities such as yard work, snow removal, maintenance repairs, depreciation, liability, and more. Plus you can pick up and leave whenever you want to (if you are not violating your lease). Figure out where and when you want to “settle down” and then worry about buying a house. Or if you’re always on the go, don’t worry about it at all.
3. The Real Estate Market will ALWAYS Fluctuate
This is something a lot of people don’t agree with or just don’t want to believe. The general idea is that if you buy a home, in 30 years the property will appreciate and you will make a return on your original investment. As people realized in 2008, that is not always the case. The key is knowing when to buy. I talked about these cycles in one of my former blog posts called “Future of Real Estate & Economic Markets.” I tagged a video called “How the economic machine works” and in it, they explain how an economy built on credit (which is how we buy pretty much buy everything in this economy) must go up and down. This isn’t necessarily a bad thing, we just need to know how to ride the waves. Buy low and sell high. If you follow that basic ideology then you will be just fine. How do you know if it’s a high market or a low market? Interest rates. If interest rates are at “historic lows” which they are currently, then that is a key indication that the market is high and property prices are skyrocketing. But as we just discussed, what goes up must come down. As interest rates get higher, spending goes down, which in turn forces housing values to go down as well. If you bought in a high market and then need to sell in a low market, you will not be too happy with your “investment.” BUT if you buy in a low market and then need to sell in another low market chances are the property will still have appreciated at least a small percentage. You can’t really go wrong.
These are just some small pointers that some may not know or think about being in your 20’s but one day we will need to figure it out. When that day comes, I’ll be here for you. Keep reading (: