A home is typically the largest purchase you'll ever make, whether you are a student or not. In December 2016, the average home sale price in the U.S. was $359,500, according to the St. Louis Federal Reserve Bank research department. That's a lot of money for anyone, but especially for someone who may be paying for college too.
Yet, home prices vary dramatically from region to region. If you attend the University of Cincinnati, for example, you’ll be able to find a more affordable home than if you attend New York University and seek an apartment in New York City. And in some regions, it's possible that buying a home with rooms you can rent to other students could end up being cheaper than paying for four or more years of dorm living (see College Dorms: Good Value or Ripoff?). If you leave the area after graduation, you can sell the house or keep it as a source of rental income.
Then there's the question of paying for it. Unless you have a handy inheritance or wealthy parents, you'll need a mortgage. Qualifying for one requires good credit, a sufficient income source and a down payment. (See 8 Financial Tips for Young Adults for helpful advice.) Here is an example of what some of the costs will be for a $300,000 home, according to realtor.com.
If this scenario is out of your price range, there are other options if you’re a student seeking a home mortgage. Know from the outset that you have to be at least 18, or 21 in some states, to apply for a loan and purchase a home.
HUD, FHA and First-Time Buyer Programs
The U.S. Department of Housing and Urban Development, or HUD, is charged with creating strong housing communities with affordable housing for everyone. It has abundant resources as well as special programs for first-time home buyers, as do many U.S. states. Click on this HUD resource for links to state-sponsored new home buyer programs. (Also read First-Time Homebuyer's Guide for more on these programs.)
The Federal Housing Administration (FHA), under the HUD umbrella, provides mortgage insurance on loans made by special FHA-approved lenders. These lenders are willing to make FHA home loans with lower interest rates and lower down payments because of the government guarantee. Students might secure a loan with a down payment as low as 3.5%, depending upon their state. You can look up the FHA mortgage parameters on the HUD website. (To find out more about HUD and FHA loans, read HUD vs. FHA Loans: What's the Difference?)
Impact of Student Loans
If you have student loans, you can defer payment on the debt while in school. It’s possible that when your lender calculates your debt-to-income ratio to determine whether you can afford a mortgage, he or she may not count the future student loan payments. On the other hand, if you’re paying your student loans in a timely manner, this can help create a positive credit profile. Another assist if you’re repaying your student loans is to request a “Pay as You Earn or Income-Based Repayment” plan to reduce your monthly loan payments.
The Benefit of a Co-Signer
If you're going to school part time and have a job (or a working spouse), you may have enough income to qualify for a modest loan. But if you lack sufficient income, you might still qualify for a mortgage with a co-signer. Typically a parent or significant other might be able to co-sign the mortgage loan if that person has sufficient resources, income and a satisfactory credit profile. A loan co-signer doesn’t receive the loan proceeds but is liable for repayment, if you fail to make loan payments. (See Financing Basics for First-Time Homebuyers for more.)
The Bottom Line
Even if you can qualify for a mortgage, that doesn’t mean buying a home is the right decision. For one thing, it requires a number of transaction costs, such as realtor commissions, taxes, fees and more. If you plan to own your home for a long time, it’s likely that you’ll recoup those initial costs, as your home value appreciates. But if you plan to live in the area for less than five years, you may be financially better off renting or even living in a dorm.
That said, if you have good credit and an income source, and you expect to stay in the area for awhile, buying a home while in school might be a wise decision. Provided you’re willing and able to serve as a landlord, renting out rooms in the home could be a good way to help cover your mortgage. However, as with any major life decision, you should evaluate your lending options and personal situation first. (For advice on the college market, see Real Estate Speculation in College Towns.)