The Best Time to Buy a Home as a College Student: Tips for Making Your Dream a Reality
Buying a home as a college student can be an exciting step in your life, allowing you to move away from dorm living and into the world of homeownership. In this article, you will learn about the costs associated with buying a home as a college student as well as everything you need to know in order to make the right decision for you.
Key Takeaway
Buying a home as a college student can be a daunting task, but with the right preparation and knowledge, it can be very rewarding. When buying a home as a college student it is crucial to do your own research and make sure you understand all of the costs associated with the purchase. Before making any major decisions, take some time to review the local real estate market, speak with a financial advisor, and determine if you have the financial ability to take on the commitment of homeownership.
Can I Buy A House As A Student?
It is possible for a student to buy a house, however it can be more challenging than for someone with a steady income and established financial history. It is important to be aware of your credit score and any possible debt you may have to qualify for a loan. Additionally, it can be beneficial to save up as much money as you can in order to make a larger down payment on the house and lower your monthly payments.
Why Buy A Home In College?
There are many reasons to consider buying a house while you're still in school. For example, buying a home in college can be a great way to jump start your financial future. Here are a few more reasons you may consider:
Avoid Room And Board Payments- Buying a home while in college can be a great way to avoid room and board payments. These costs can quickly add up over time, so avoiding them altogether can provide students with additional financial flexibility. When making the decision to purchase a home as a student, it is important to research housing options and consider the long term benefits. For example, will you be able to keep up with mortgage payments after college?
Start Investing Early- Buying a home in college can be a great opportunity for students to start investing early. Investing in real estate can bring long-term financial stability, as well as provide an opportunity for students to build a portfolio of assets. When considering buying a home in college, it is important to look into the available financing options and consider other investments
Take On New Responsibilities- Took on new responsibilities as a student homeowner, such as budgeting for mortgage payments and managing homeownership costs. Gained experience in long-term investments by researching available financing options and exploring other investment opportunities.
The Challenges Of Buying A Home As A Student
We’d be lying if we didn’t say you’ll certainly encounter hurdles to buying a home as a student. By going over the following challenges, we hope to help you become more prepared.
Income- Income as a college student is typically limited, which can make it difficult to buy a house. For those considering buying a home while in school, it is important to have an understanding of your financial situation and determine if you are able to make the necessary payments on time and in full. The amount you will need for a down payment and the interest rate of your loan will also depend on your credit score and other qualifying factors.
Credit Score- A good credit score is essential for buying a house, as it allows lenders to assess risk and determine whether a loan can be approved. As a college student, you may not have established a strong credit profile, which can make it more difficult to qualify for a loan. It is important to take the time to build up your credit score and make sure it is in good standing so you can be eligible for better loans.
Debt- Debts can cause roadblocks on the path towards homeownership, as lenders may not want to approve a loan if they think you are unable to make the mortgage payments. It is important to pay off as much of your debt as you can before applying for a loan, and find ways to manage any remaining debt you have.
Savings- Here is a short list of both one-time items and regular expenses you may need to consider saving for before buying a home:
Down payment: Depending on the type of loan you’re getting, you’ll need a down payment ranging anywhere from 3% – 20% of the purchase price. A 20% down payment is still considered preferable for many home buyers because it means avoiding private mortgage insurance (PMI) associated with conventional loans. Higher down payments also generally mean lower rates.
Homeowners insurance: Mortgage lenders require homeowners insurance so that your property can be repaired or rebuilt in the event of damage. But you can also buy coverage for the contents inside of your home in the event of theft, as well as liability coverage if someone injures themselves on your property. Homeowners insurance is generally included in monthly escrow payments to make annual premiums easier to handle, but if you don’t have an escrow account, you’ll need to budget separately for this cost.
Mortgage insurance: If you make less than a 20% down payment on a conventional loan, you’ll need to pay for PMI. The cost of PMI can vary based on your credit score and the size of your down payment, but it’s generally anywhere from 0.1% – 2% of the loan amount. FHA loans have mortgage insurance premiums (MIP). There’s an upfront fee of 1.75% of the loan amount that can either be paid at closing or built into your loan. You’ll also need to pay annual premiums that vary based on the loan amount and the size of your down payment or equity amount. It’s not mortgage insurance, but VA loans also have an upfront funding fee.
Property taxes: Property taxes are based on the value of your home. These local assessments go up or down with that value. Property taxes are typically paid through an escrow account in order to spread that cost throughout the year.
Closing costs: Your closing costs cover things like title work, title policies, credit checks and appraisals along with local recording fees. On a purchase, these typically range from 3% – 6% of the loan amount. On a $200,000 loan, that cost is anywhere between $6,000 – $12,000. You can ask for seller’s concessions and lender credits to bring the cost down, but you’ll still need to consider budgeting for these upfront costs.
Stability- As a college student, stability is one reason you might want to get a mortgage. It is important to develop financial stability by budgeting and saving for necessary down payments and associated financial costs while building up credit score to qualify for better loan terms.
Responsibility-
Homeownership comes with a ton of responsibility. Even if you’re just living on your own, a mortgage represents a relatively large monthly payment that you need to be sure you can make. If you’re also the landlord, the maintenance responsibilities and tracking down rent from roommates can be time-consuming and can hit your pocketbook.
Either way, you may have to figure out how to balance your student life with the responsibilities of homeownership, and that’s not always easy.
Tips For Acing Your Mortgage Application
As a college student, acing your mortgage application means understanding the loan process and preparing yourself to demonstrate that you’ll be able to make the payments. Here are some tips for getting through the mortgage application process:
Don't Disqualify Yourself If You Have Student Loans- If you have student loans, the prospect of homeownership may seem daunting. However, it is still possible to qualify for a mortgage even with student loan debt. The key is to be proactive and organized when it comes to preparing your mortgage application.
First and foremost, make sure that all of your student loan payments are current and that you have a history of making on-time payments. Additionally, make sure to provide all relevant documents and financial information when applying for the mortgage.
Make A Down Payment Strategy- To make sure you have enough money saved for your down payment and all associated costs, create a budget plan with realistic goals. Start by setting aside small amounts each month until you reach your goal amount. You should also consider utilizing any available resources such as grants or loans from family members or friends to help cover the cost of the down payment if needed. Finally, research different loan options so you know what type of loan best suits your needs before applying for one.
Improve Your Credit Score- Your credit score is an important factor in determining your eligibility for a mortgage. As such, it’s important to keep track of your credit score and take steps to improve it if needed. You can easily track your credit score with a free online service like Credit Karma or Credit Sesame.
Finally, aim to have at least three months of cash reserves in the bank before applying for a mortgage. This will show lenders that you are prepared to handle any unexpected expenses that come up as a homeowner.
Home Buying Programs For Students
If you are a student looking to buy a home, luckily there are a few different options and programs that might be helpful:
HUD- The Department of Housing and Urban Development (HUD) offers loan products that can help make purchasing a home easier for college students. HUD's Federal Housing Administration (FHA) loan program is designed to provide low down payments and access to more lenient credit standards. FHA loans require only 3.5% down payment and generally have lower upfront costs than other loan options.
VA Loans- The VA loans program helps veterans and service members pay for homes, with no down payment required and more lenient credit standards. These loans are available to any active service member or veteran who has served at least 90 days of active duty during wartime or 181 days of active duty during peacetime.
USDA- The US Department of Agriculture (USDA) Rural Development Home Loan program offers a zero-down payment loan option to students who are looking to purchase a home in an eligible rural area. These loans require no minimum credit score and typically have lower interest rates than other loan products.
FHA- FHA loans are a great option for college students who are looking to purchase a home. These loans offer more lenient credit standards and require only a 3.5% down payment, making them much more accessible than other loan products. Additionally, FHA loans typically have lower upfront costs than other loan options and often have lower interest rates as well.
Co-Signing- Co-signing is a viable way for college students to purchase a home, if they do not have the ability to qualify for a loan on their own. When co-signing, another person agrees to take responsibility for the loan in the event that the borrower cannot make payments or otherwise defaults. This can be beneficial for college students as it can help them secure a loan with better terms and lower interest rates.
Conclusion
Buying a home in college can be a great opportunity for students to start building their financial futures, as well as gain experience with long-term investments. Although there are many challenges that come along with buying a home while in school, it is important to research available financing options and make sure you have the right qualifications before applying. With proper preparation, buying a home in college can be an excellent way to build financial stability and security for the future.
