The cost of a college education can make it more difficult to buy a home when you’re young. As student debt has ballooned over the past decade, the homeownership rate among young adults has dropped significantly. But it is possible for college students to buy a home before age 25—it just takes a little planning. The knowledge you gain in a college classroom can set you up for a rewarding career. At the same time, skills and habits developed outside the classroom can put you on the path to a sound financial life. It takes a significant amount of cash to buy a home, including money for your down payment and closing costs. Here are nine money moves to start making in college that can help you buy a home before age 25.
1. Improve your financial literacy
Financial literacy means understanding key concepts about your personal finances and being able to evaluate information and offers to make good financial choices. This can help you take charge of your financial life and have a better handle on your savings, debts, and investments. You’ll even see the benefits right away. Financial literacy has been connected with lower college dropout rates and better management of tuition payments. Your college may even offer courses or seminars in financial literacy to help you achieve this one quickly, or you can pick up a book on personal finance and learn on your own time.
2. Learn how to budget
A good budget will tell you how much money you’re bringing in each month and help you allocate it to specific fixed expenses. It also gives you guidelines on how much you can spend on things like dining out and entertainment. You shouldn’t spend more than you earn, so it’s better to overestimate your expenses and underestimate your projected income as you put together your budget. With your budget in place, begin tracking your day-to-day spending. You can determine how well your expenses match up with your budget as well as discover small things you spend money on that add up over time.
3. Start saving early and often
The budget you put together should include putting some money into a savings fund. Also referred to as an emergency fund, this is money you can tap into when you run into an unexpected expense like a car repair or medical bills. Ideally, you’d have three to six months’ worth of expenses set aside in your fund—but every little bit helps. Only about 55% of Americans say they have any money set aside for a rainy day, according to the Federal Reserve. Financial experts advise you to take the approach of “paying yourself first,” aka putting money into your savings fund right away when you get your paycheck rather than waiting to see what’s left over at the end of the month. This way, you can build up your emergency fund, pay off your debt more quickly, or save for a house—all are smart financial choices.
4. Find the right bank accounts
Find the right checking and savings accounts that fit your needs. You can generally find a checking account with no monthly fees and no minimum balances. You may want to consider a bank with a wide branch network or good online services, especially if you’re not sure where you’ll end up after graduation. Some banks and credit unions even offer discounts to college students, so be sure to ask about those as well. For your savings account, you can shop around to find the highest interest rate to ensure your money grows over time. It’s important to have both, but more than a quarter of college students surveyed by the Trellis Company reported having only a checking account.
5. Keep applying for financial aid
You may have filled out the FAFSA when you were applying to colleges, but don’t forget to fill it out each year you’re in college too. Even if you didn’t qualify for much aid at first, you may be offered more in subsequent years. Carefully review what you’re offered and be sure to accept free money like grants and scholarships first. Also consider work-study programs and avoid loans if at all possible. If you must take out a student loan, try to stick to federal subsidized loans—where the government pays for your interest while you’re in school.
6. Manage your debt
You can make things easier for yourself in the future by evaluating your student loans now rather than waiting until they’re due. In most cases, you’re not required to make payments on your loans while you’re enrolled at least part-time. But unless you have only federal subsidized loans, interest is accruing even when you’re taking classes. When you leave school, interest will be “capitalized” into your loan, adding to the total amount you owe and giving you a larger monthly payment. Many lenders give you the option of making interest-only payments while you’re in school, preventing the balance from running up before graduation. If your budget allows, you may also be able to make principal and interest payments in college, giving you a head start on eliminating your student debt. The lower your debt payments later on, the more money you can put aside for a house.
7. Pay all your bills on time
As you make your budget, make sure you’re including all your monthly payments and monetary responsibilities. Note their due dates to make sure you’re paying them on time. When you’re in college, you’re just starting to build a credit history, and the best way to develop a good credit score is to always make all your payments on time. When you apply for a home loan, lenders will look carefully at your payment history, and if it’s good, you’re more likely to get the loan you need.
8. Use your credit cards wisely
Credit cards can tempt you to spend way more than you should. It’s easy to swipe a card to make your purchase now and worry about paying for it later. But remember, every time you swipe a credit card, you’re really taking out a small loan for that specific purchase. Ask yourself if whatever it is you’re buying is worth it, and only spend an amount you feel comfortable paying off each month.
9. Monitor your credit score
A credit score is a number used by lenders to evaluate how likely you are to repay a loan—and thus whether you will receive one. With your financial plan in place, you can watch your credit score grow. The higher your score, the easier it’ll be to qualify for loans and get the best interest rates. You can request a free copy of your credit report each year at AnnualCreditReport.com from one of three main credit bureaus: Equifax, Experian, or TransUnion. Some apps and services offer credit score monitoring for free throughout the year. Many mortgage loan programs have minimum credit scores you must meet to qualify, and low scores may make it difficult to get a loan for a home in the future.
Making smart money moves in college will set you up for financial success in the future—and make it a lot easier to buy a house at a younger age. This is a lot of tips to tackle at once, so start with your budget; you’ll be surprised how easy it is to follow the other advice from there. Good luck with your finances! We hope you land your future home sooner than you think.
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