When you graduate from college, you are probably thinking that buying a home is in your distant future.  If you are careful with your finances, you may be able to buy a home sooner than you think.

Outlined below are some basic facts about buying a home:

1. Be leery of bank loans which require a limited down payment.  You could get yourself into a mortgage debt that will be hard to survive.  You will generally have higher interest payments and will probably have to buy mortgage insurance.
2. Pay off your other debts before you consider buying a home.  These other debts are likely to affect your credit and your ability to qualify for a home loan.  Also the other debt you owe is likely to have higher interest than a home.
3. Use a mortgage calculator to determine how much you will need to pay for a new house.  You don’t want to have mortgage payments, real estate taxes, insurance and other annual home costs that exceed 28% of your gross income.
4. Determine how much of a down payment you can afford to pay.  Remember you may be able to borrow up to 50% of your 401 (k) to help out in the down payment.
5. Be careful to consider closing costs.  These can be 3% -5% of your home’s value. 
6. Choose an interest rate option.  This includes the number of years and the type of interest rate.  The two types of interest rate options are:

■      Fixed rate – the same interest rate over the life of the loan.

■      Adjustable rate – the interest rate varies with the overall interest rate market.

You will generally need to go for a loan that goes for 30 years.

7. You need to understand how your loan works.  Basically your payment will go almost entirely for interest at first.  Consider a loan of $100,000 for 30 years at 5% interest:

At first you are paying a lot for interest, but you are also getting a significant deduction for your taxes.

8. Check out your employer’s policy on helping you with selling your home if you are moving.  Many employers are very supportive of employees when they are moving.
9. See if your parents can help you on your home purchase.  Young graduates would be wise to forgo an expensive wedding in lieu of asking parents for help in making a down payment on a home.
10. Don’t go crazy buying furniture or doing repairs.  What you want to do is to develop a capital budget each year for home related expenses.

Finally think of your home as a long-term investment not as a social status symbol.  It’s often true that the most successful persons live in modest homes that they find meet their needs..