Mortgages for Students In School

Before college graduation, is it practical to buy a home rather than rent? After graduation, what can a recent college graduate expect when looking for a home mortgage? Let this article be a point of departure toward understanding mortgages for students.

The Dorm Debate

The national average cost for a dorm now is almost $8,000 per year. Students who consider purchasing a home instead of accepting on-campus housing all have different motivations and different rates of success.

Potential risks you accept when purchasing a home:

• Failure to discern the costs of owning and maintaining a home accurately.
• Failure to track all the costs of repairs properly.
• Conflict with the prior owners (especially if parents are the financial glue holding the deal together).

Many “college towns” have lagged behind the national trend for home appreciation. This reflects the consistent availability of relatively cheap college housing with high levels of summer vacancies. On the other hand, there are situations in which home ownership is intriguing in such a location:

• When campus housing is relatively more expensive than the modest return common to “college towns”.
• When the student is intent on remaining in the same town or city after graduation.
• If the student is mature and has proven financial responsibility.
• If the student desires the challenge of a such a commitment, or the privacy that goes along with home ownership.
• To establish residency, and therefore in-state tuition rates. (Residency usually requires one year of occupancy.)
  

First home away from home

The first years after graduation can create the financial pattern for a decade. Sadly, some studies suggest that almost 80% of all students report their college loans prevent them from getting a home mortgage. And the worst purchase award, which most grads regret, goes to buying a new car instead of a reliable used car.

If you are interested in buying a home, the time to start your search is during your senior year of college. While most home shoppers need to focus on credit and debt issues about six months before they plan on financing, college students are in a different boat. Many students do not even know where they will live until right before or after graduation because of competing job offers.

Tips for soon-to-be graduates:

• Shop for pre-approved loans to allow for flexibility in location.
• Avoid taking on any debt on top of your student loans to get the maximum possible range.
• Take advantage of the six- and nine-month deferral periods on your loans by looking for home mortgages soon after graduation.
• Lenders will want either a large down payment, or proof of a payoff of student loans, if you are around the national loan debt average of $18,000. If you plan to make monthly payments on your loans, this is going to be around $200. If you hypothetically could pay off the $18,000 debt, then you would be able to finance approximately $25,000 more on your mortgage (assuming you built up your credit while in college).

It is no longer reasonable to plan to use student loan money for home financing. One of the best things you can do to ensure financial success in the future is to limit the amount of student loan money taken out initially. Do not take out the maximum amount of aid offered. Realistically, you essentially could be taking out “home equity” by taking out more than what is absolutely necessarily to finance your education.