Buying A House In College Is Difficult, But Can Be Worth It
With all the expenses a student incurs in college, it's hard to even envision purchasing a house. Yet, students living in a college town rarely crunch the numbers to figure out how their monthly rent payments compare to a mortgage. It's not uncommon for a student to pay anywhere from $600 to $800 in rent for shared spaces in apartment buildings close to college campuses. However, the national average monthly mortgage payment is $1,061. Even including utilities, HOA fees, upkeep, and other expenses, that cost could easily match an on-campus housing unit, if another student rents out a room.
So, what's preventing today's generation of students from buying a house in college? Here are the top five worries students have about buying a home in college, and how to know if this should stop you from buying a home near your school.
1. The Money
Con: As a college student, you already have too much debt. Piling on a mortgage could make you go bankrupt before you can even graduate.
Pro: If you buy conservatively and pick a good payment plan, then you won't run into that many problems.
It's easy enough to calculate how much you can afford in a mortgage. All you need to do is use one of the many mortgage calculators the internet has to offer. However, go a little under the estimated monthly mortgage the calculator says you can afford. Often times, the amount they quote you does not include other random monthly costs you might not have considered. Plus, you'll always want a little money on the side for college expenses. Like books. And energy drinks. And ramen. Lots of ramen.
If the number they quote you is more than on- or off-campus housing would usually charge, it might be a better idea to stay in campus housing You don't want to ruin your credit before you even have a degree.
Con: No one is willing to cosign for you and you can't get a loan on your own.
Pro: You don't always need one. You can sometimes find homes on a land contract.
With many young adults getting their first credit card at the beginning of college, credit scores of college students are usually very low. So, in order to even rent an apartment near a college campus, many companies often ask for a cosigner as an added level of protection. Buying a house is definitely not an exception if you want a mortgage from a bank or the government, you'll most likely need a cosigner.
A cosigner is basically the person who makes your loan happen if you have a low credit score. The lender factors in the cosigner's credit score, so you can borrow more than your score would allow you to. The arrangement is good for the borrower, but bad for the cosigner. If you default on your loan payments, then the lender can go after your cosigner and make him or her pay. So, understandably, finding a family member or friend to cosign can be difficult.
Luckily, there are ways to get around the system if you can't get a loan with a cosigner. If you find a seller that is willing to sell on a land contract, your dreams of owning a home could come true. Buying a home on a land contract basically means that you are paying the monthly installments to the previous owner of the house, not a big bank. Convincing a homeowner that you can pay the bills on time is much easier than trying to convince a bank, so the odds of you getting a house are higher.
If the owner will not sell the home on a land contract and you cannot find a cosigner, it is best to just live on campus. The financial risk of taking out a loan with a higher interest rate (because of your low credit score) is not worth the benefit of having your own home.
3. The Investment Window
Con: You'll only be here three to five years. After that, you have no idea where you'll be. Making this big of an investment is not a good idea for such a short period of time.
Pro: You can use that home as an investment after you graduate by renting it out. Even if you just break even every month, the financial benefits could be worth it.
So, you don't know where you'll be five or six years from now. There is no way you can pay off your mortgage in that time (unless you win the lottery), so you'll either need to rent out the place or sell it after graduation. Renting means having the added responsibility of maintaining the home for your renter, no matter if you live across the country, down the street, or 12 time zones away. But, it can have financial benefits, especially if you're able to charge more than the cost of your mortgage as rent. The real question here is: are you willing to keep up the house when you're not living there? If you're not, then buying a house isn't for you.
Con: You have to concentrate on studying, working, and other college activities. Maintaining a house would just be another stressor.
Pro: You'll learn all of what goes in to maintaining a house. So, then you're willing to settle down in a family, you'll be an experienced home owner.
Maintaining a house does take time, energy, and money. But it might not be as difficult as you might think. Yes there are unexpected expenses - a window breaking, a lock rusting, or plumbing problems, for example - but these problems don't have to be that time consuming, unless you plan on fixing them yourself. Hiring a professional can save time and, in many cases, money. However, if you are crunched for time, this is not the ideal situation for you.
5. The Risk
Con: There's just too much risk involved in every aspect of home buying at your age.
Pro: The risk of buying a home at that age can also lead to many benefits.
Home buying at a young age is definitely not for everyone. The process can be risky, daunting, and could even put you in a very difficult financial situation. But, for those that are willing to make mortgage payments work and are willing to rent and make repairs to a property, this risk is worth it.