Getting a Mortgage While Being a Student

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Getting a Mortgage While Being a Student

The biggest purchase you’ll likely ever make in your life is a house. It takes a lot of effort and self-control. However, it’s a choice that shouldn’t be made hastily. After all, it is expensive for everyone, including those who are employed full-time.

For someone who may also be paying for education, purchasing a house might be considerably more difficult. However, being a student does not automatically make it impossible for you to pursue your dreams. Read on to find out more about what it takes to be a homeowner while in college and strategies you may use to combine the two if you’re still in school.

Key Takeaways

  • You can still acquire a mortgage even if you are a college student.
  • To be eligible for a mortgage, you must have a high credit score, access to a down payment, employment or other sources of income, and a low debt-to-income ratio.
  • Theoretically, if you purchase a house but live in a dorm, you could rent it out to make money.
  • Low interest rates and little down payment are also features of FHA loans.
  • To get the loan from the bank, you could require a co-signer.

The Costs of Homeownership

As of February 2022, the typical selling price for a house in the United States was $357,300, according to the research division of the St. Louis Federal Reserve Bank. But keep in mind that this is just the median. The cost of homes varies wildly from area to region. If you go to the University of Cincinnati, for instance, you’ll have an easier time finding a house than if you go to New York University and look for an apartment in New York City.

It may even be feasible in certain areas to own a house with rooms you can rent out to other students for some additional money. This may help you pay for your mortgage and may wind up being less expensive in the long run than paying for four or more years of dorm living. After graduating, if you decide to move away from the neighborhood, you may sell the property or continue to rent it out.

Do You Qualify for a Mortgage?

You’ll still need to get approved for a mortgage, just like everyone else. Unless, of course, you have affluent parents or a useful bequest. But let’s face it—the majority of us don’t fall within that description. However, being a student does not automatically exclude you. To get a mortgage, you must still meet the same requirements as everyone else: a high credit score and sufficient equity to be taken into account. Although many lenders have increased their rules for mortgage consumers, keep that in mind.

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You’ll need to make sure you’re gainfully employed—or at least have a source of continuous income—and have a pretty low debt-to-income ratio depending on the type of property you buy and the type of mortgage loan you acquire. Do not forget to include your down payment. You may need to save aside up to 20% of the entire purchase price as a down payment if you attempt to get a traditional mortgage.

To help you picture how much you’ll have to pay for a mortgage, we’ve made an effort to keep things straightforward. So, as per realtor.com, here is an illustration of some expenses for a $300,000 house:

  • Purchase price: $300,000
  • 20% down payment: $60,000
  • Principal plus interest, property taxes, insurance, and mortgage insurance total $1,449 a month for a 30-year fixed-rate mortgage with a 3.551% interest rate.

If you’re a student looking for a house mortgage and this situation is out of your price range, there are alternative possibilities. Be aware that you must be at least 18 years old to apply for a loan and buy a house (or older in some states).

If purchasing a property is not financially viable, particularly if you are a student, avoid doing so.

Home Buying Programs

HUD

The mission of the U.S. Department of Housing and Urban Development, generally known as HUD, is to provide vibrant neighborhoods with accessible housing for everybody. The government organization, founded in 1965, enhances homeownership prospects at more reasonable prices. In addition to many tools, HUD also offers unique programs for first-time homeowners. Additionally, it offers state-specific initiatives for prospective homeowners.

FHA Loans

Under the auspices of HUD, the Federal Housing Administration (FHA) offers mortgage insurance on loans provided by certain lenders with FHA approval. Due to the government guarantee, some lenders are ready to provide FHA mortgages with smaller down payments. In contrast to traditional mortgages, you may qualify for a loan as a student with a down payment of as low as 3.5% of the purchase price. Naturally, this depends on the state in which you want to make the transaction.

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You could also get a reduced interest rate with FHA loans. Most of these mortgages have fixed interest rates, making it possible for qualified borrowers, including students, to finance up to 96.5% of the home’s purchase price. This reduces supplemental expenses like closing charges. Additionally, it may lower your mortgage costs. The 203(b) house loan, which enables you to cover 100% of the closing expenses with a gift from a family, a government agency, or a charity, may also be an option for you.

On the HUD website, you may search up the FHA mortgage requirements.

Impact of Student Loans

If you have student loans, you may postpone making payments while you’re still in school, which allows you to lower your total debt burden. Therefore, it’s probable that the future payments on your student loans won’t be taken into account when your lender determines your debt-to-income ratio to see whether you qualify for a mortgage.

On the other side, timely repayment of your student loans may assist establish a good credit history. You may want to think about using one of the Federal Student Aid office’s income-driven repayment programs, which lowers your monthly loan payments. One of these programs is available for the majority of federal student loans.

Consider a Co-Signer

If you’re a part-time student who also works or has a spouse who works, you could have enough income to be approved for a small loan. However, if your salary is insufficient, you may be able to get a mortgage with a co-signer. If a person has enough money, a enough salary, and a good credit history, they may normally be eligible to co-sign the mortgage loan. This includes parents, guardians, and significant others. While a co-signer is not entitled to the loan profits, they are responsible for repayment if you don’t make your installments. Therefore, it’s crucial that you make your payments on time to avoid breaking up with your partner.

I am a College Student, Can I Get a Mortgage?

If you are a college student and can get a house loan, a lender shouldn’t treat you unfairly.

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Will My Student Loans Impact Getting a Home Loan?

Your debt-to-income (DTI) ratio includes your school debts. Your DTI is taken into consideration by lenders when determining your loan eligibility. Taking on more debt, even in the form of a mortgage, might increase your chance of failing on either loan if you already have a sizable amount of student debt.

Can You Use Student Loans to Buy a House?

Using student loan funds for purposes outside than paying for your education is not advised. You can be required to return your student loans right away if you’re reported to the U.S. Department of Education. Additionally, lenders may want you to provide documentation of your financial transactions; for example, an increase in cash from a student loan would likely be looked at by underwriters.

The Bottom Line

Even if you are approved for a mortgage, purchasing a house may not be the best course of action for you. It necessitates other transaction charges, including realtor commissions, taxes, fees, and more, to name a few. If you want to keep your house for a long time, the increase in value of your property will probably allow you to recover those early payments. However, if you just want to reside in the region for a little period—less than five years—you could be better off renting a home or perhaps moving into a dorm.

However, purchasing a property while still enrolled in school may be a smart move if you have strong credit, a reliable source of income, and you want to remain in the region for some time. If you’re able and ready to act as a landlord, renting out rooms in your house could be an excellent method to contribute to your mortgage payment. However, you should first consider your financing alternatives and personal circumstances as with any important life decision.

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