Should a College Student or Recent Grad Buy a House?

college student house purchaseI was having an interesting discussion the other day about whether a college student or recent graduate buy a house instead of rent. Prices of houses and condos have come down tremendously, and in some markets, the cost of renting may be about equal to the cost of a mortgage and such.

Based on my discussion, I’ve listed some of the pros and cons of a college student or recent graduate buying a house.

 

Pros of A College Student Buying a House:

  • If rent and the cost of ownership are equal, a house builds equity while rent just build’s the landlord’s equity
  • The house could appreciate, which would give the student leverage to buy their next home out of college
  • If the house has multiple rooms, other rooms could be rented out with the proceeds going toward the mortgage, reducing the college student’s costs even further

Cons of a College Student Buying a House:

  • Most college students don’t stay where they went to school, so what will happen with the house?
  • What kind of mortgage was required to make the payments equal to rent? Was it an adjustable rate mortgage that will cause problems in a few years?
  • Is the cash flow really sufficient once all costs are taken into consideration: mortgage, insurance, property taxes, association fees, maintenance and repairs, etc.
  • Is the college student responsible enough to pay the bills, be a landlord if needed, etc.?
  • Will the student miss out on other college adventures such as dorm life or fraternity life?

Based on my thoughts and the pros and cons above, I think that college students and recent graduate should really find a cheap place to rent, save their money, and wait to buy something until they have their feet firmly planted in a place they will be a while. Even once a recent graduate lands his first job, he could move to another location or higher position within a year or so. Until life’s major moves have taken place, I think college students and recent grads should wait. Housing prices will not skyrocket overnight, so there is plenty of time to get into the housing market.

Did you buy a house in college or right after, or know someone who did? Do you think they should have?

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Comments

  1. says

    Thought provoking post Robert! The way I look at it if you can save 20% for a downpayment plus some as emergency funds, you should buy one or else save towards that goal.

  2. says

    I’m on track to graduate with zero debt and a good amount of savings in the bank. Still, I’m not going to buy a house until probably a couple years after graduation. Even though I won’t have the burden of loan payments, I want to take a couple years to make and save a good amount of money before I start taking on big expenses.

  3. says

    I couldn’t agree more with what you said. I personally think that it also depends on exposure to risk. How much of a risk are some college kids willing to take? With the economy how it is what are the chances of find good renters and what happens if the graduate can’t find a job or is laid off.
    Personally I’m against home ownership until later on in life like you said. My own thoughts are to live with my parents for a couple years and save until I can pay for most of a house with cash. I would rather not be a slave to debt for a good portion of my life.

    -Ravi G.

  4. says

    As someone who got out of college in the last 5 years, I understand the desire to buy a house, now that the market is “cheap.” However, many of my friends who did buy houses are now renting them, as they took new jobs or went back to school in different parts of the world.

    I agree with you Robert. Rent, travel, and explore. When you put down solid roots, go for the house.

    • says

      I have a couple friends renting out their houses now as well. However, with rents being so high, it has turned out to be a good investment for them.

  5. Jake Perius says

    Interesting article about something important that we often overlook. I’m 17 years old right now and I don’t wanna own a house when I go to college. It’s a roadblock for me. It’s really a subjective question when asking if a student wants to buy a home or rent. Some will be content living where they are, others will want to move on to bigger and better things. It’s easier to fit rent in a budget as well. What college student wants a mortgage? Not me!

  6. says

    When my brother was in college, he resided at one of the houses that a student bought. The house was purchased during the housing bubble and the owner was actually losing money even if the rooms are occupied. She has the right idea of trying to make money or having fellow students pay for the mortgage but it was just bought at the wrong time. I believe the house is in foreclosure now.

    • says

      Yikes! I had a friend do just that setup, but it is very cash flow positive. Maybe since a student bought it, he couldn’t qualify for great loan rates?

  7. Bogey says

    I’d like to see a case where a college student actually qualified for a mortgage while going to school (without parents co-signing).

    As for a recent grad buying a house right our of school, I say go for it! It’s the best move I made so far, and I’ve been out of college for 4 years now. I bought my first house 3 months after graduating (age 23) and lived there about 3 years. While living there, I also purchased my first rental property (at age 25).

    Just this summer my wife and I sold that first house and got something larger and in a better neighborhood.

    Owning my own place at an early age taught me to be responsible for a large asset and all that goes into maintaining it. It also got me on the path to building wealth.

    • says

      I was actually able to afford a house in college, but I also worked full time and had been working since I was 16. I chose not to buy one, and I’m glad I did as the real estate market tanked about a year after I graduated.

  8. says

    “Owning my own place at an early age taught me to be responsible for a large asset and all that goes into maintaining it. It also got me on the path to building wealth.”

    same here, still on the fence though… always say I never regretted buying @ 22, but the last few years have been rough, though I have learned SO SO much and renting would have cost just about the same including the renovating I’ve done (a one bedroom or studio that’s not an absolute dive would have run me at least $600 and my mortgage a month is only 250)

    It really depends on the person doesn’t it….

    • says

      Sounds like you made a good choice, but I agree with you on the tough part.

      I always think this: if my plumbing backed up or pipe burst and I owned the house, it would be on me to fix. If I rented, I just call my landlord. There are times when renting is just so much more appealing.

  9. says

    I definitely wouldn’t have considered a house in college or immediately after. But then again, I couldn’t afford it when I was in college.

    I refuse to purchase a house without 20% down because I won’t pay PMI!

    • says

      Good point on PMI! I think buying in a college town can be a great investment though, because there will always be a steady influx of people and usually employment.

  10. Stephanie says

    I know that currently my fiance and I are considering buying a 2 bedroom/2 bath townhouse in the the DC area which has zero down and no closing costs at around $250k (payments of $1700 a month) with normal houses in the area being sold around $100k more. We have both been out of school for less than a year but with the cost of renting in the area ($1500 minimum for a small 1 bedroom apartment), it seems like a good option. I’m just concerned with acquiring more debt in addition to our hefty student loans and being responsible for a mortgage with both of us not being established in our careers.

    • says

      Could be a great deal. Are you getting no closing costs and no down payment with a special loan program, or because your paying a higher interest rate?

  11. Cason says

    Thanks for this article. My wife and I are getting out of the military and have $35k saved up. We are looking at either renting or buying in the Tucson, AZ area where we will be going to school for at least six years, and even plan on staying there permanently (we’ve had enough “world travel”, her family lives there as well). We can get a nice house for $100k or lower with a mortgage (PITI) of $550/mo, where apartments are $700/mo! We are both 23. Her dad is in HVAC, and her brother is a plumber, so we are set if any of those kind of maintenence issues arise.

    I just wonder if buying in this case is an obvious choice to others as it is to me. Are we crazy, Robert?

    • says

      It sounds like that could be a great deal! One thing to consider is what is the plan in 6 years, and is the home something you plan on staying in forever? If not, are you okay selling or renting later?

      Now is a great time to take advantage of home ownership, but in areas like Tuscon you should be careful because you may not be able to resell easily. As such, you could end up being a landlord if you have to move for work.

  12. Kaelli says

    I don’t know if you will still comment on this… but, my Fiance and I are looking at buying a house. He is not in college and going to be going into the military and has a steady job, and I go to college. I would not be living there for the next 2 years before we get married. The house is located in the same neighborhood as my parents (which is what we want to start a family once married) and is in a very nice area of town. But he will be living there with some roommates and they will be paying the monthly payment and know that in two years when we get married I will be moving in. The house is listed at $190,000 and is a 3 bedroom 3.5 bath with a finished basement. Even if the monthly payment is $1000 there is no way we can find a three bedroom for him and his roommates to rent for under $1000. Would this be a crazy move?

    • says

      It isn’t necessarily a crazy move but having a house early on is going to be a burden on your relationship – more bills (beyond the $1,000 mortgage, you have taxes, insurance, maintenance, HOA, etc.). You’ll likely pay closer to $1,500 or $1,800 a month to own the property.

      If you’re going to do it, make sure you protect yourself by having your name on the house (as well as his), and own it as Joint Tenants. That way, if you do split, you’ll have rights to your half of the property.

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