Being a student doesn't, by itself, disqualify you for a mortgage. Buying a house while you're in college gives you a stable place to live while you build your credit and your equity. Considering how long you plan to stay and whether you can afford the payment when your student loan payments kick in can help you decide if homeownership is right for you.
Reasons to Buy
If you're planning to stay in the same area for several years while in college and for work, buying a house might make more sense than renting, and if you're a married student, dorm living is just not for you. When interest rates are low, you're likely to have a lower monthly payment than for many rental properties or at least an equivalent payment. You also get the benefit of payment stability without worrying about the rent increasing. Having a mortgage helps build your credit and might provide tax benefits if you itemize your income tax. Also, you have the potential to borrow against the equity in your home if you need money unexpectedly or to help with college expenses.
Mortgage companies have strict requirements for the people they lend money to. To qualify for a mortgage, you must have steady employment, a sizable down payment, a low debt-to-income ratio and good credit. Building all these to meet a lender's requirements is difficult when you add a school schedule to the mix, but it's not impossible. Mortgage companies have different requirements, but they tend to look for at least two years of employment, 10 to 20 percent of the house price as a down payment and a credit score of 680 or higher. Your spouse's income and job history will also be taken into consideration. Together, you must make enough to meet the lender's income requirements, but you don't have to make an equal amount. Whether you and your spouse are students with part-time jobs or one of you is a student who works only part-time and the other has a full-time job, you both can be included on the mortgage as long as there's good credit on both sides.
Some people rack up hefty student loans during college, which can stop them from qualifying for mortgages. If you think your loan payments are going to knock you over your debt-to-income limit, buying a house before you start making the deferred payments might be a better idea. If you've already started repaying loans, consolidating them or extending the loan terms might lower your ratio enough to qualify for a mortgage. Mortgage companies typically are more concerned with the monthly payments on your student loans than with the overall debt amount. For example, if you owe $50,000 in student loans but your payment is only $500 a month, you'll have a lower debt-to-income ratio than if your loans were $25,000 but you paid $800 per month.
Weigh your housing options carefully before investing in a home while you're a student. If you aren't sure whether you'll be going to school and working in the same area for at least five years, the investment might not pay off. Instead, you could lose money if you have to sell sooner -- even if you sell the house for the same price you paid, you have to subtract at least 6 percent for the real estate agent fees. Investigate the market carefully to make sure it's stable or steadily improving to make sure you aren't buying a house you can't sell for what you owe in the future. Also, consider the extra expenses involved in owning a home. The monthly payment is only part of your cost. You must also pay taxes, insurance, homeowner association fees, repair costs and for yard maintenance or the equipment to maintain the yard yourself. If your college program plus your job takes up most of your time, a maintenance-free condo or a rental might serve you better for a while than a fixer-upper.
- Lending Tree: Minimum Requirements to Qualify for a Mortgage
- Bloomberg Business Week: Student Debt is Stifling Home Sales
- Lender 411: How to Qualify for a Mortgage as a Young Adult
- BankRate: Beware Co-signing for a "Kiddie Condo" Loan
- New York Times: Dealing with Student Debt
- US News and World Report: Buying Property for Your College Student: 7 Considerations
- Realtor.com: Buying a Home for a College Student
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