Buying Property As A Student: Can You Get A Home Loan In College Or Graduate School?

College is a time for education and exploration. It can also be an expensive investment – and 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 housing and potentially create an income stream for yourself after college. So, how do you buy a house as a college or graduate student?

Can You 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.

The one caveat is that you have to reach a certain age to buy a house in your state, called the age of majority. 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 loan.

You also have to qualify financially. 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.

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 in the long term to buy an off-campus home in the area.
• Start investing early: It’s never too early to start investing, and real estate is one avenue for that. If you purchase and build equity in a home as a college student, you could sell the property for a profit. You could also rent it out for a source of income.
• 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.

Buying Property As A College Student: 5 Factors To Consider

If you’re thinking about buying a house as a college or grad student, there are several factors worth mulling over before you take the next step. Let’s take a look at some of the most important considerations before buying a home.

1. Income

Income is one side of your debt-to-income (DTI) ratio, which outlines 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.

The higher your income, the better. However, as a college student, you may face challenges that affect how much you can earn:

• Types of jobs available: College students often find entry-level or low-paying jobs. This means you might not have enough income to buy a home immediately compared to later in your career.
• Job stability: Many college students change jobs often or hold positions without pathways to guaranteed full-time employment. Mortgage lenders need to see consistent income in order to qualify you for a loan and will ask employers about the likelihood of continued employment in your field.

2. Debt

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 and you have student loan debt, it’s important to understand how this factors in.

If you have student loans and are still in college, payments are usually deferred until after you graduate. When student loans are in deferral, lenders use different formulas to account for these future payments, depending on the type of loan you apply for.

3. Savings

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: While it depends on the loan type and the number of units in the home, you’ll typically need a down payment ranging from 3% – 20% of the purchase price. A 20% down payment can help you avoid private mortgage insurance (PMI) and usually means lower interest rates.
• Maintenance: You can expect to pay 1% – 3% in maintenance costs per year depending on the age and condition of the home.
• Homeowners insurance: Lenders require homeowners insurance to cover potential property damage. You can also get coverage for theft and liability. This cost is usually included in monthly escrow payments, but if you don’t have an escrow account, budget for it separately.
• Mortgage insurance: If your down payment is less than 20% on a conventional loan, you’ll need to pay for PMI, which costs 0.1% – 2% of the loan amount. FHA loans require a 1.75% upfront mortgage insurance premium (MIP), payable at closing or added to the loan, plus annual premiums. VA loans also have an upfront funding fee instead of mortgage insurance.
• 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 out their cost throughout the year.
• Closing costs: These cover things like title work, title policies, credit checks, appraisals and local recording fees. Typically, they range from 3% – 6% of the loan amount. On a $200,000 loan, that cost is anywhere between $6,000 – $12,000. You can reduce these costs with seller’s concessions and lender credits, but you should budget for them upfront.

4. Stability

Stability is one reason to consider getting a mortgage, though college life often lacks stability. Here are a few factors to consider:

• Frequent moves or school transfers: You might transfer schools or move quickly, which can force you to sell the property on short notice and miss out on a long-term investment.
• Market fluctuations: Being in a home for a short time can make you vulnerable to housing market fluctuations. While home values generally increase over time, short-term declines can happen and you might need to sell during a downturn.
• Income instability: College jobs, such as temporary internships, often lack stability. These potential interruptions in your income can affect your ability to commit to a monthly mortgage payment.

5. Responsibility

Homeownership comes with a ton of responsibility. Even if you’re just living on your own, and not renting to tenants, a mortgage represents a relatively large monthly payment that you need to be sure you can make. If you’re also a landlord, the maintenance responsibilities and tracking down rent from tenants can be time-consuming and can hit your wallet.

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 looked at the factors to consider when buying a home in college, let’s run through some actions you can take to overcome the hurdles college students face when affording 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 most mortgage options, your DTI should be kept under about 43%. However, some loan options feature more flexible DTI ratios, particularly FHA and VA loans.

Sometimes, it can 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. 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), the Pay As You Earn (PAYE) plan or the Saving on a Valuable Education (SAVE) Plan – at least through closing.

The SAVE Plan, similar to IBR and PAYE, allows for lower monthly payments based on your income and the size of your family. This can make it easier to manage student loan debt while qualifying for a mortgage.

Make A Down Payment Strategy

One of the biggest 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 may even 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. Here are some of the biggest factors to think about if you’re trying to improve your credit:

• Payment history: One factor that contributes to your credit score is whether you make your payments on time on installment loans and 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 an 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, your credit utilization ratio is 25%. Ideally, you should keep it under 30%.
• Credit mix: Lenders like to see you can manage both revolving debt (credit cards) and installment debt (student or car loans). If you haven’t started paying off a car or student loan yet, consider getting a credit builder installment loan from your bank. If you’ve never had a credit card, you can get a secured card, which uses your deposit as the credit limit.
• Age of credit: The longer you’ve had credit accounts and loans, the better. This can be a challenge for college students, who typically have a short credit history. If you haven’t established credit yet, open an account as soon as possible. Even if you don’t plan to buy a home immediately, building your credit history now will benefit you in the future.
• New credit: The amount of new credit you have can also impact your credit score. Opening several new credit lines or taking out multiple loans at once may signal to lenders that you’re struggling financially.

Home Buying Programs For Students

Let’s run through some home loan programs for college students and other options when buying a house while in college.

Conventional Loans

To qualify for a conventional loan, you need a credit score of at least 620. A key advantage for first-time home buyers is the ability to make a down payment of 3%, compared to 3.5% for an FHA loan. You’ll also avoid paying lifetime mortgage insurance, which is required for FHA loans.

When it comes to student loans, the calculation for qualifying can vary. If the payment isn’t found on your credit report, lenders may use 0.5% – 1% of your student loan balance per month to determine eligibility. If this calculated payment is too high, you can provide a statement showing your actual payment.

FHA Loans

FHA loans, offered through HUD, have features that can be particularly useful for college students. You can qualify with a median FICO^® Score of 580 or better if you have a relatively low DTI. If your FICO^® Score is 620 or higher, you can qualify with a higher DTI than most other loans, except VA loans.

FHA loans also allow for manual underwriting in certain situations, which can help those with lower credit get approved based on a thorough review by an underwriter.

For student loans, FHA loans use the greater of these amounts for qualification:

• 0.5% of the remaining balance per month if the current monthly payment is $0
• The actual payment showing on the credit report

If you’re on an income-based repayment plan, your DTI calculation can use the statement amount.

VA Loans

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. They offer significant benefits, such as no down payment requirement and the ability to qualify with a higher DTI than other loan programs.

The VA doesn’t set a specific minimum FICO^® Score requirement, which provides some flexibility. However, lenders can set their own limits. For example, at Rocket Mortgage, we require a 580 minimum. VA loans also allow for manual underwriting.

For student loans, VA loans use the greater of these amounts for qualification:

• The payment shown on the credit report
• 5% of the outstanding loan balance divided by 12

Can College Students Use A Co-Signer On Their Mortgage?

If you can afford the monthly mortgage payment but your lower income prevents you from qualifying for the house you want, co-signing could be a good option. When someone co-signs with you, they take joint responsibility for the mortgage.

This allows you to use their income to help you qualify. This can also lower your DTI and increase the amount you can be approved for.

Typically, close family members are most likely to agree to co-sign. However, if you miss a payment, your so-signer is equally responsible for the mortgage. It’ll affect both their credit and yours. So, no matter who co-signs your loan, it’s crucial to ensure you can afford the payments before asking someone to co-sign.

The Bottom Line: Weigh The Risks And Rewards

Buying a house in college may be a viable option if you have a qualifying credit score, a low DTI, the funds for a down payment and a consistent income to make your monthly mortgage payments. However, you’ll want to consider the pros and cons before taking the next step toward homeownership as a college or grad student.

If you’re ready to move forward or want to see what you qualify for, start your mortgage application today.