How I Bought My First House at 23

Posted on Jun 20th, 2016 | Investing, Savings

Like many young people my first priority after high school was to go to college. However, upon doing further research (hours of Googling and browsing Craigslist for jobs), the future employment market for college grads didn’t seem as lucrative as it had been made out to be. So I took the opposite approach. I figured I could get a house and rent out the rooms for income when I was ready to attend school.

In most cases you need three things to get a mortgage loan: A good credit score, proof of income and a big pile of money. I only had two of the three. My credit was good. I’d got a credit card at 16 to pay for gas and had always paid it off each month. I had a decent paying job, but after a recent setback in the stock market, I was short on cash for the down payment.

I made a spending plan and through budgeting, cooking at home and resisting the urge to upgrade my generic car, I had the money required two years later.

The large down payment necessary to purchase a house would empty my entire savings account. While I wanted a house, having no money left over for emergencies and other expenses would leave me very vulnerable, which sounded like a bad option. I wanted to find a different way.

At the time, I had just completed my first stint with the military. This allowed me to qualify for a home loan through the Veteran’s Affairs office without putting any money down. The VA is notorious for making veterans jump through more hoops than a dolphin at SeaWorld, but this process was much simpler than anticipated. I went to the bank with my documentation, and left with a pre-approval letter for a $350k loan.

Just because someone is approved for a larger loan, doesn’t mean they are obligated to spend the entire amount. It’s smart to take future plans into account before trying to imitate the designer homes shown on TV. My intent was to rent out any extra rooms to my former soldiers and fellow college students. This would allow me to capitalize on my networking skills, relieve much of the financial strain and have some extra play money.

It’s a big commitment buying a house. It ties the owner to a certain area, and obligates them to make payments for the next 15 to 30 years depending on the type of mortgage. Considering the location and future job potential in the area is crucial.

I bought a four bedroom, three bath house located on a small lot with a fenced backyard near the local college in my hometown. The loan was for $185,000 which meant the monthly payments would be around $1300 for the next 30 years. The master bedroom was massive and segregated from the other side of the house. This was important to my sanity as I wanted to escape the drama that comes with having roommates.

With a mortgage and other bills (water, power, internet, etc.) costing an additional $200, the grand total came to $1500 in monthly expenses. By renting two rooms in my house, at $400 each, I was left with monthly bills of $700. That was less than I was previously paying for my crappy, one-bedroom, wrong-side-of-town apartment.

My house ended up being the best investment I ever made as it continues to generate rental income. The key to my success was that I worked first, and set up a cash flow stream prior to taking on the additional expenses associated with college.

Photo by James Thompson via cc