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Greetings. Huge friend and fan of the pod. I recently graduated and got a job paying about $70,000 a year as well as a $8,500 signing bonus. With very little savings, a 760 credit score, no debt, and an opportunity to live with my grandparents rent-free for the next year, am I crazy to be thinking about getting a starter home for about $150k within the next 15 months? Any advice in addition to the recent pod about “Rent vs Buying” will be greatly appreciated.
Ultimately, home buying is a very personal decision. From my experience, I would recommend the advantages of living rent free as long as you can. Instead of immediately buying a starter home with a number of unforeseen expenses, I would use this unique opportunity to prioritize the following:
- Set aside money, at least an additional $1,000, for unexpected homeownership expenses
- Practice living on a budget that would include the cost of your future home to establish positive spending and saving habits before the bills and real life kick in
- Establish an emergency fund to sustain you for at least three and up to eight months of living expenses
- Save at least 10- and up to 20-percent of the down payment towards your home
- Check out Money After Graduation’s Why You Need To Put At Least 10% Down On Your First Home (And How To Save It!)
- If one exists, ensure you’re fully maximizing your employer’s 401k match during this time to jumpstart or accelerate your retirement savings
For example, if you saved just $416/mo from 25-35 and never invested again, you may have well over $600,000 in compounded interest and savings by retirement. Starting early and young is one of the easiest and best investment strategies.
Even an aggressive home loan is typically 10-15 years and most are 20-30 years. While interest rates are at historic lows, I don’t believe there is a rush to make your first home purchase when you have a chance to live completely rent and mortgage free. This seems like a great chance to grow, save, and invest your money. Sometimes these opportunities don’t come again so I would take advantage while you’re young.
Regarding other resources, if you haven’t already, check out wealth advisor and Episode 48 guest, Kirk Chislom’s pros and Cons of Renting versus Buying:
- Should you rent or buy a home?
- What is the true cost of home ownership?
- What you don’t know about renting vs buying can cost you
Best of luck!