Buying Property As A Student: Can You Get A Home Loan In College Or Graduate School?
Kevin Graham15-minute read
July 24, 2023
College is a time for education and exploration. You might have also noticed that it’s an expensive investment – and that a big portion of that investment goes toward room and board.
For those who qualify, buying property as a student could allow you to save money on room and board while potentially creating an income stream for yourself after college. We’ll go over what you need to know to buy a house as a college student. But first, let’s get back to basics.
Can I Buy A House As A Student?
If you’re in college or graduate school, it may take a minute to get used to the idea of being a potential real estate investor. But in reality, almost anyone who has the financial wherewithal can take out a mortgage to buy a home if they choose.
The one rider to this is that you must have reached the age of majority in your state. That’s usually 18, but some states have their own age requirements and rules about when you can legally sign binding financial instruments like a mortgage.
You do have to qualify financially, and students in college – including those further along in grad school – may face several hurdles that make qualification more difficult. However, mortgage qualification certainly isn’t impossible.
If you’re ready, you can start a mortgage application with Rocket Mortgage® for free to see what you qualify for.
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Why Buy A Home In College?
You have many reasons to consider buying a house while you’re still in school. Let’s run through a few of them before moving on to challenges and how to get yourself ready for them.
Avoid Room And Board Payments
Depending on market conditions around your university – and the amount charged for rent or room and board by a landlord or the college itself – it could actually be cheaper to buy an off-campus home in the area if you qualify.
When trying to decide whether it’s better to rent or buy, the first thing to think about would be whether you can qualify for a mortgage at this point. While we’ll go over how to hop that hurdle later on, let’s assume you do qualify for now.
The second important factor is your monthly costs. Based on what’s included in your rental agreement or room and board in the dormitories, you can do some math to figure out whether it’s cheaper to keep renting or buy your own place. Here are several things to make sure you include in your calculations:
- Mortgage vs. rent payment
- Groceries/eating out budget vs. meal plan in the dorms
- Utilities – include water, electrical, gas and internet at minimum
- Maintenance – include factors like the cost of potential appliance repair and replacement as well as structural upkeep
- Homeowners insurance renters insurance
- Property taxes
- Association dues if you live in an area with a homeowners association (HOA) or condo association
When budgeting for maintenance, it’s generally recommended that 1% – 3% of the home’s value is set aside each year, depending on the age of the home and its condition when you moved in. Use our mortgage calculator to get an idea of what you might be able to afford.
Start Investing Early
It’s never too early to start investing, and real estate is one avenue for that investment. If you purchase and build equity in a home as a college student, you could sell the property for a profit that would come in handy when you’re getting started after graduation. You could even use the profit to pay toward your student loan debt.
You could also convert a house you were living in during college into an investment property that you could earn rental income on – provided you occupy the property as a primary residence for a length of time stipulated in your mortgage contract.
Owning a rental property is a great way to earn passive income without having to do much. On the other hand, you have to be willing to take on the responsibility of occasionally finding new tenants. You’re also responsible for maintenance, which can cut into your return.
Being a landlord isn’t for everyone, but for those willing to put up with the downsides, it can be a good option for extra income, especially in college towns.
Take On New Responsibilities
For students who see college as a form of independence and who have the financial means, a house payment may be that bridge toward taking on the responsibilities associated with adulthood.
In other words, handled responsibly, a house can be something that allows you to stand on your own. If you’re ready to take the first step – or if you’re just curious what you might qualify for – you can apply online with Rocket Mortgage today.
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 is one side of your debt-to-income (DTI) ratio, which takes a look at your monthly debt payments in relation to your monthly income. Along with your down payment, your income is one of the top factors in determining how much you can afford.
Of course, the higher your income, the better. However, as a college student, you may face challenges like the ones below in how much income you can earn:
- The first challenge is the types of jobs available to college students. These positions are usually entry-level, low-paying or both. So, you won’t have as much income to buy a home right out of college as you will later in your career.
- The second challenge is job stability. The types of jobs that you usually get right out of college are often internships with no guarantee of full-time work. Your mortgage lender wants to know that you’ll have consistent income from your field in order to qualify you to buy a home. They’ll ask your employers about the likelihood of the continuance in the field.
Debt is the other half of the two-sided DTI equation. If your debt is high enough relative to your income, it can prevent you from qualifying for the home you really want or need. If you’re buying a home with student loan debt already on your books, it’s important to understand how this factors in.
If you have student loans and you’re still in college, any required payments are deferred until after you graduate. When student loans are in deferral, several different formulas may apply in terms of how lenders take that future data into account, depending on the type of loan you apply for.
- Conventional loan: Depending on which investor is backing your conventional loan, if they can’t find the payment on your credit report, they’ll use 0.5% – 1% of your student loan balance per month to calculate if you qualify. If you can’t qualify with that payment, you can show your lender a copy of the statement proving your actual payment. Your Home Loan Expert will be able to help direct you into the best program for you by taking into account your student loans among several other factors.
- FHA loans: Federal Housing Administration (FHA) loans are qualified with the greater of the following student loan payments:
- 1% of the remaining balance per month
- $10 per month
- The actual payment showing on the credit report. For DTI purposes, your student loan payment can be your statement amount if you are on an income-based repayment plan as long as the amount shown on the statement is more than $0.
- VA loans: Borrowers getting Department of Veterans Affairs (VA) loans are qualified with the greater of the following:
- Payment shown on the credit report
- 5% of the outstanding loan balance divided by 12
- Jumbo loans: These non-conforming mortgages require you to be qualified with a payment of 1% of your student loan balance. In the event that proves to be beyond your affordability range, you can again show your lender a statement with your actual payment.
If you’re using a student loan payment on the statement, that payment can’t be $0. If that’s the case, you have to be qualified with a percentage of the loan amount. With that said, we’ll get into some mitigations later on to help you qualify with student loans.
If you need more help understanding how to purchase a home with student loan debt, you can start your mortgage application today to speak with a Home Loan Expert and see which type of home loan you should apply for.
The following is a short list of both one-time items and regular expenses you need to think about saving for if you’re going to buy a home:
- Down payment: Depending on the type of loan you’re getting and the number of units in the home (you can often get up to four units and live in one while renting out the others for extra income), 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.
- Maintenance: We mentioned this before but expect to pay 1% – 3% per year depending on the age and condition of the home.
- 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 is one reason you might want to get a mortgage. But college doesn’t always lend itself to stability, so here are a few potential factors to consider:
- You could transfer schools or move in short order. If this happens, you might have to sell the property on short notice, leading you not to see the same model of long-term investment potential that others might see in a home.
- You’re more prone to market fluctuations if you’re only in the home for a short period of time. History has proven that the housing values tend to go up at a fairly predictable rate over the course of a long period. But that doesn’t mean the real estate sector is immune to near-term fluctuations. You don’t want to end up in a situation where you have to sell because you need to move in the middle of a down market. College students are more likely to need to move.
- Finally, you don’t necessarily have income stability. Given the jobs you can get in college – particularly if it’s something like a temporary internship – you may often find yourself between jobs. These potential interruptions in your income are something to consider when you’re thinking about committing to a monthly mortgage payment.
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
Now that we’ve examined all the pros and cons of buying a home while in college, let’s run through some actions you can take to mitigate some of the hurdles faced by college students when trying to afford a purchase as big as a home.
Don't Disqualify Yourself If You Have Student Loans
Just because you have student loans and they count toward your DTI doesn’t mean you automatically won’t be able to afford a home. In order to qualify for the most possible mortgage options, your DTI should be kept under about 43%. However, some loan options feature more flexible DTI ratios, particularly FHA and VA loans.
Moreover, it can sometimes be worth waiting until you’re repaying your student loans in order to qualify. The reason for this is that lenders and mortgage investors have more certainty over what your payment will be when it’s out of deferral. Some loans are qualified using the same policies whether the loan is in deferral or repayment. Others have a lot more flexibility during repayment.
A conventional loan from Fannie Mae and our Jumbo Smart loan both allow you to qualify with an income-based repayment of $0 on your student loans if you have difficulty qualifying otherwise. But you’ll need to prove that you’ll be on either the Income-Based Repayment (IBR) or the Pay As You Earn (PAYE) plan – at least through closing.
Make A Down Payment Strategy
Obviously, one of the big obstacles of buying a house as a college student is saving for a down payment. But you have some steps you can take to help yourself when it comes to saving for a house, including careful budgeting, cutting out things you don’t need and picking up side hustles.
If careful saving habits aren’t getting you where you want to be – or they’re not getting you there fast enough – you can also look at down payment assistance programs.
Certain mortgage options offer you the chance at buying a house with no money down. If you’re getting a VA or USDA loan, you also have the option of not making a down payment at all. Note that with a VA loan, you’ll still have a funding fee that can be paid at closing, but it can also be built into the loan. At this time, Rocket Mortgage® doesn’t offer USDA loans.
Improve Your Credit Score
Your credit score is one of the most important components to consider when applying for a home loan, both from a basic qualifications standpoint and when trying to get the best rate possible. We have several tips for improving or establishing credit, but here are some of the biggest factors to think about:
- Payment history: The biggest factor in determining if you have good credit is whether you make your payments on time on installment loans as well as revolving credit accounts. The more you can make your payments on time, the higher your score will be.
- Credit utilization: Credit utilization is the amount of your available credit line that you’re using at any given time. For example, if you had a credit line of $1,000 and regularly carried a balance of $250, that would make your credit utilization ratio 25%. Ideally, your utilization should be kept under 30%.
- Credit mix: Lenders want to see that you can effectively handle both the revolving debt brought on by credit cards and the installment payments on debt like student or car loans. If you haven’t begun making payments on a car or student loan yet, one action you can take is look into credit builder installment personal loans that may be offered by your financial institution of choice. If you’ve never had a credit card before, you can get a secured card where the credit limit is based on money you deposit in your account.
- Age of credit: The longer you’ve had credit accounts and loans, the longer your credit Unfortunately, age of credit is one factor that tends to work against college students, as they’ve only had 4 years or so to build a credit history. If you haven’t established credit, you should do so as soon as possible by opening some kind of account. Even if you don’t plan to buy a home or make major purchases immediately, you should still start building your credit history for the future.
- New credit: The last big factor that impacts your score is the amount of new credit you have. If you start opening a bunch of new credit lines or taking out several loans at once, lenders may consider it a red flag that you might be struggling financially.
If you’re looking for more personalized tips, you can get a free once weekly VantageScore® 3.0 credit score and report from Rocket HomesSM.
Home Buying Programs For Students
Let’s run through some first-time home buyer programs that might be helpful if you’re a student looking to buy a home.
The Department of Housing and Urban Development (HUD) loans are backed by the FHA, USDA or VA. What you might not be as familiar with are the different resources they offer to home buyers.
For example, their Dollar Homes program offers low- or moderate-income individuals and families the opportunity to purchase a foreclosed home for only $1. To qualify, a foreclosed home must be valued at $25,000 or less and must have sat on the market for 6 months or longer.
Beyond that, HUD maintains a list of local home buying resources that could be well worth checking out.
FHA loans are also offered through HUD, but they deserve special attention because they have some features that could be particularly useful for somebody in college. For starters, if you have a relatively low DTI, you can qualify with a median FICO® Score of 580 or better.
Secondly, if you have a slightly higher FICO® Score of 620 or better, FHA loans allow you to qualify with a marginally higher DTI than you can on almost any other loan outside of VA loans, which we’ll get to next. The exact DTI limits will depend on your situation, so speak with a lender to learn more.
In certain situations, FHA loans also allow for manual underwriting. This may help people who have thinner credit files to be approved based on a thorough review by a trained underwriter.
VA loans are available to eligible active-duty service members, reservists, members of the National Guard, veterans and surviving spouses receiving dependency and indemnity compensation.
VA loans offer qualified borrowers a couple of major benefits, including no down payment requirement. Also, you can qualify with a higher DTI on a VA loan than you can on any other major loan program. On a fixed-rate mortgage, DTIs as high as 60% qualify at Rocket Mortgage.
The VA also doesn’t set a specific minimum FICO® Score requirement, so you may find some flexibility there. At Rocket Mortgage, we require a 580 minimum.
Finally, as with FHA loans, VA loans allow for some possibilities for manual underwriting that might help some qualify.
Although you need a credit score of at least 620 in order to qualify, the major advantage of a conventional loan is that as a first-time home buyer, you can qualify for a down payment as low as 3% of the purchase price, compared to 3.5% on an FHA loan.
Also, you avoid the lifetime mortgage insurance that comes with an FHA loan. The mortgage insurance on conventional loans can generally come off once you reach 20% equity.
If you know you can make a monthly mortgage payment, but your lower income prevents you from qualifying for the house you would like, co-signing could be a good option. When you have someone co-sign with you, they’re taking joint responsibility for the mortgage.
The advantage of this is that you get to use their income to help you qualify. This has the effect of lowering your DTI and increasing the amount you can be approved for.
As a practical matter, people who are closest to you, like a family member, are most likely to agree to co-sign with you. However, you should know that if you fail to make a payment, they’re as responsible for that mortgage as you are. Please note that if you miss a payment, it affects their credit as well as yours. So, no matter who co-signs your loan, it’s a big decision, and you should absolutely know you can afford a payment before you ask.
The Bottom Line: Weigh The Risks And Rewards
If you’re thinking about buying a home as a college student, you have many practical reasons for doing so, including avoiding giving money for room and board to someone else, the investment potential inherent in real estate, and the ability to have certain responsibilities as a gateway to your own independence.
It does come with its own challenges as well. Your income is likely to be lower, which might mean that you have more debt right now and less savings. Career stability isn’t a given right out of college, and you might not be ready for the level of responsibility that buying a home requires.
However, if you’re ready, student loans don’t necessarily have to hold you back. You can also take concrete steps to supercharge your savings for a down payment and to raise your credit.
If you’re looking for resources, HUD isn’t a bad place to start. FHA, VA and conventional loans also have their own advantages for those looking to buy a home. Finally, co-signing a mortgage is a pact based on mutual trust. However, it can help you lower your DTI by qualifying with the assistance of another person’s income.
If you’re ready to move forward – or if you just want to see how much home you qualify for – you can get started by applying for a mortgage online.
1 Rocket HomesSM is a registered trademark licensed to Rocket Homes Real Estate LLC. The Rocket Homes logo is a service mark licensed to Rocket Homes Real Estate LLC. Rocket Homes Real Estate LLC fully supports the principles of the Fair Housing Act.
For Rocket Homes Real Estate LLC license numbers, visit RocketHomes.com/license-numbers.
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