Should graduate students buy houses? And if so, how?
March 20, 2005 10:47 PM Subscribe
Despite MetaFilter's members' fantastic advice for my boyfriend to choose MIT over GA Tech, my guy is most likely going to stay in Atlanta. He's talked about the possibility of buying a house in ATL, but living on a student stipend, and without substantial savings, how would that work? (He's curious, too, not just me.) Renting in Atlanta is expensive, so a house payment could very possibly be lower than rent . . . and we've heard sometimes people buy without down payments now . . . but we're not sure about the logistics. Any good info is appreciated. : )
Affording a house consists of so much more than just being able to make the payment. First off, when calculating any house payment, don't forget that you're going to have at least a couple hundred dollars in property taxes and insurance on top of that, so the payment might not be as low as you think. And do you really want to mow the lawn, and clean gutters, and maintain plumbing and furnaces at this stage in your life? Or can you afford to pay someone to handle these services? Will you have an emergency fund in place to handle the repairs that invariably come up? Do you have or can you buy all the major appliances you need? You'll likely have to supply your own fridge, stove, washer and dryer if you buy a house. When people say "rent is throwing away money," they often don't think about what a rent payment does provide - appliances, maintenance, and often utility payments as well.
Financially, even if you don't have to have a down payment, you'll still need to come up with earnest money and closing costs. You *may* be able to get your closing costs rolled into the mortgage, but that just increases the amount of your loan. When you're researching this on line, don't just check out the loan offers, really read up on financial sites about what it takes to own a house and the funds you should ideally have in place before doing so. I know that in my situation, I just now am beginning to feel comfortable with being able to cover any big repairs that might come up after two years of homeowning, and my husband and I both work full time.
Also, if you would be buying this house together with your boyfriend, are you both certain of your future together? I'm not saying that you shouldn't buy until you're married or engaged, but separating when you own property together could be rather sticky, so just be as sure as possible.
I agree with melissa may's advice that it wouldn't be impossible for you to buy right now, but as you might have guessed, I don't really recommend it, not quite yet. You may be OK in a condo, but even then I recommend saving up a down payment or at least a better nestegg first. Good luck.
posted by boomchicka at 4:50 AM on March 21, 2005
Financially, even if you don't have to have a down payment, you'll still need to come up with earnest money and closing costs. You *may* be able to get your closing costs rolled into the mortgage, but that just increases the amount of your loan. When you're researching this on line, don't just check out the loan offers, really read up on financial sites about what it takes to own a house and the funds you should ideally have in place before doing so. I know that in my situation, I just now am beginning to feel comfortable with being able to cover any big repairs that might come up after two years of homeowning, and my husband and I both work full time.
Also, if you would be buying this house together with your boyfriend, are you both certain of your future together? I'm not saying that you shouldn't buy until you're married or engaged, but separating when you own property together could be rather sticky, so just be as sure as possible.
I agree with melissa may's advice that it wouldn't be impossible for you to buy right now, but as you might have guessed, I don't really recommend it, not quite yet. You may be OK in a condo, but even then I recommend saving up a down payment or at least a better nestegg first. Good luck.
posted by boomchicka at 4:50 AM on March 21, 2005
Others have raised some good concerns here, and I tend to agree with a lot of it...but to strictly answer your question...
Yes, it is possible to buy a house with no money down. The strongest consideration here, in my opinion, is how long he would want to keep the place. If you buy a place with no money down and only want to be in it for five years or so, you're going to have very little equity (percentage of the house you own vs. what you owe the bank) in it. When you go to sell it, even if the market is great, you're still going to have closing costs when you sell, too, and it's not uncommon to have to pay to get out of the mortgage on the sale. You can ususally get the seller to help with the closing costs when you buy, but that also means that when you sell, you're that guy, and your buyer will want some help, too. You potentially end up going to closing writing a check just to get out of the house, with no proceeds from the closing to apply to the next house. That may be okay for you - I don't have enough detail to advise further - I'm not a realtor or mortgage broker.
A nice advantage to home ownership is the mortgage interest tax deduction. Even if you carry two notes on a house (also common) you get whopping deductions for home ownership. Helps a lot at the end of the year. Good mortgage payment history helps your credit quite a bit.
Other costs you need to consider as well - inspection and appraisal fees, title insurance, etc.
If there are credit problems, FHA loans (govt. backed mortgages) are quite helpful. You have to pay a little bit more on the mortgage itself (PMI is mandatory, but the loans are generally easier to get, and the closing costs are limited by the Feds so they don't get out of control.
Above all, the best advice I can give you is to find a realtor whom you trust. Talk to people you know there who own homes - realtors often work off word-of-mouth and referrals. The realtor's job is to hold your hand through the process, explain the details, and outline long and short-term ramifications of what you're doing. It's also their job to get you the best deal possible. I just went through the buying and selling of two houses between November and January. A good realtor is absolutely worth every penny of the commission they make, in my humble opinion. Talk to as many as you need until you find one who you feel comfortable with. And good luck in this decision.
posted by TeamBilly at 6:06 AM on March 21, 2005
Yes, it is possible to buy a house with no money down. The strongest consideration here, in my opinion, is how long he would want to keep the place. If you buy a place with no money down and only want to be in it for five years or so, you're going to have very little equity (percentage of the house you own vs. what you owe the bank) in it. When you go to sell it, even if the market is great, you're still going to have closing costs when you sell, too, and it's not uncommon to have to pay to get out of the mortgage on the sale. You can ususally get the seller to help with the closing costs when you buy, but that also means that when you sell, you're that guy, and your buyer will want some help, too. You potentially end up going to closing writing a check just to get out of the house, with no proceeds from the closing to apply to the next house. That may be okay for you - I don't have enough detail to advise further - I'm not a realtor or mortgage broker.
A nice advantage to home ownership is the mortgage interest tax deduction. Even if you carry two notes on a house (also common) you get whopping deductions for home ownership. Helps a lot at the end of the year. Good mortgage payment history helps your credit quite a bit.
Other costs you need to consider as well - inspection and appraisal fees, title insurance, etc.
If there are credit problems, FHA loans (govt. backed mortgages) are quite helpful. You have to pay a little bit more on the mortgage itself (PMI is mandatory, but the loans are generally easier to get, and the closing costs are limited by the Feds so they don't get out of control.
Above all, the best advice I can give you is to find a realtor whom you trust. Talk to people you know there who own homes - realtors often work off word-of-mouth and referrals. The realtor's job is to hold your hand through the process, explain the details, and outline long and short-term ramifications of what you're doing. It's also their job to get you the best deal possible. I just went through the buying and selling of two houses between November and January. A good realtor is absolutely worth every penny of the commission they make, in my humble opinion. Talk to as many as you need until you find one who you feel comfortable with. And good luck in this decision.
posted by TeamBilly at 6:06 AM on March 21, 2005
I'm a grad student at GA Tech myself. I looked into buying rather than renting, but on the stipend the chemistry department gives me, it would be awfully hard to get approved. Any real payment would
I recommend this site for general first-time house-buying information.
I do have a friend (also a grad student) who bought near here, in Alpharetta. So it can be done. Although, to be fair, he was an investment whiz so he wasn't only living on the school's paycheck. I'll ask him who he bought through.
posted by solotoro at 7:25 AM on March 21, 2005
I recommend this site for general first-time house-buying information.
I do have a friend (also a grad student) who bought near here, in Alpharetta. So it can be done. Although, to be fair, he was an investment whiz so he wasn't only living on the school's paycheck. I'll ask him who he bought through.
posted by solotoro at 7:25 AM on March 21, 2005
I currently live in the Emory area on Briarcliff Rd, and the condos around here seem to turn around fairly quickly. That eliminates your need to do exterior work. Also, I can walk to Georgia Tech in less than an hour by way of Virginia Ave.
So, anywhere between here and Tech (iow, Virginia-Highlands) should be a good investment and still close to campus. I do a lot of walking for exercise around here and I have seen quite a few smaller homes, perfect for a childless couple. You should find something with a monthly payment between $1000 to $1500.
posted by mischief at 7:54 AM on March 21, 2005
So, anywhere between here and Tech (iow, Virginia-Highlands) should be a good investment and still close to campus. I do a lot of walking for exercise around here and I have seen quite a few smaller homes, perfect for a childless couple. You should find something with a monthly payment between $1000 to $1500.
posted by mischief at 7:54 AM on March 21, 2005
First off, when calculating any house payment, don't forget that you're going to have at least a couple hundred dollars in property taxes and insurance on top of that, so the payment might not be as low as you think.
I'm not sure if it works the same in all states, but here the insurance and property taxes are rolled up in to the mortgage. When you sit down with a realtor and bank and actually look at the terms of the mortgage, those are line items that included in the mortgage payment.
We bought our house on a "now money down" mortgage. We still had to spend $6000 dollars in closing costs and inspection fees, etc. It worked out ok for us because we got the loan through my credit union, so the rates are quite all right.
posted by gus at 7:56 AM on March 21, 2005
I'm not sure if it works the same in all states, but here the insurance and property taxes are rolled up in to the mortgage. When you sit down with a realtor and bank and actually look at the terms of the mortgage, those are line items that included in the mortgage payment.
We bought our house on a "now money down" mortgage. We still had to spend $6000 dollars in closing costs and inspection fees, etc. It worked out ok for us because we got the loan through my credit union, so the rates are quite all right.
posted by gus at 7:56 AM on March 21, 2005
I'm not sure if it works the same in all states, but here the insurance and property taxes are rolled up in to the mortgage. When you sit down with a realtor and bank and actually look at the terms of the mortgage, those are line items that included in the mortgage payment.
This is often optional, and subject to the terms of the mortgage. Generally, the mortgage company keeps the taxes and insurance in an escrow account and they pay the bills out of the account. However, you don't HAVE to do it this way, depending on your credit.
If you have less than perfect credit (often referred to as b-paper) then the mortgage company will sometimes collect a couple of months of escrow funds at closing to ensure that you're covered for a while. Then, after a year or so, they will often refund the overage to you.
I mentioned FHA loans earlier. FHA loans REQUIRE that you escrow taxes and insurance, and that they collect 3mos worth in advance.
One other thing I failed to mention earlier: if/when you buy a house, strongly consider moving your auto insurance policies to the same insurance company who is handling the house. Ins. companies like to get all of your business, and will give you huge discounts to move your cars over with the homeowner's policy. Ultimately, this can save you money each month. It did for me.
posted by TeamBilly at 8:42 AM on March 21, 2005
This is often optional, and subject to the terms of the mortgage. Generally, the mortgage company keeps the taxes and insurance in an escrow account and they pay the bills out of the account. However, you don't HAVE to do it this way, depending on your credit.
If you have less than perfect credit (often referred to as b-paper) then the mortgage company will sometimes collect a couple of months of escrow funds at closing to ensure that you're covered for a while. Then, after a year or so, they will often refund the overage to you.
I mentioned FHA loans earlier. FHA loans REQUIRE that you escrow taxes and insurance, and that they collect 3mos worth in advance.
One other thing I failed to mention earlier: if/when you buy a house, strongly consider moving your auto insurance policies to the same insurance company who is handling the house. Ins. companies like to get all of your business, and will give you huge discounts to move your cars over with the homeowner's policy. Ultimately, this can save you money each month. It did for me.
posted by TeamBilly at 8:42 AM on March 21, 2005
I'm not sure about the price required to buy in Atlanta since I rent, but my gut feeling is it would still be cheaper to rent unless you really want to live in a soon to be gentrifying neighborhood (i.e., the hood).
I've found it relatively easy to find reasonable rent here, certainly much cheaper than the Boston area. I'd recommend looking into neighborhoods for older apartments rather than large complexes, as you more likely to find a deal. Look in Inman Park, Virginia Highland, Midtown, and Home Park (which is really really convenient to Tech).
posted by trox at 8:54 AM on March 21, 2005
I've found it relatively easy to find reasonable rent here, certainly much cheaper than the Boston area. I'd recommend looking into neighborhoods for older apartments rather than large complexes, as you more likely to find a deal. Look in Inman Park, Virginia Highland, Midtown, and Home Park (which is really really convenient to Tech).
posted by trox at 8:54 AM on March 21, 2005
living on a student stipend, and without substantial savings
I'd give pretty good odds that no one will approve a mortgage for your boyfriend under those circumstances. Checking at places that focus on "first time buyers" is the easiest way to confirm this (or not).
And it's really not clear that it is less expensive to own than to rent, as others have noted - property taxes, property insurance, and maintenance are all non-visible costs that homeowners pay; plus monthly payments will be higher than you might expect if you don't/can't pay closing costs and you put little money down as principal. Remember that for a lot of people, buying a house makes financial sense because (a) they get a mortage deduction on their federal income taxes [inapplicable to you], saving 25 to 35 percent of their payments, and (b) they hope to get appreciation in the value of the house [remember that you need a 6 to 8 percent gain to just break even, given real estate broker fees and closing costs].
More constructively: the best bet is to get a parent or relative (with good credit) to co-sign the loan. They'd have to really believe in your boyfriend to do so; co-signing isn't a trivial matter (nor is the paperwork that has to be signed in buying a house).
Finally, do consider that a student ought to be focusing on studies, rather than on all the responsiblilities that come with home ownership (including the time to find and buy a home - not trivial, to do it right - and to sell the home at a later time).
posted by WestCoaster at 9:47 AM on March 21, 2005
I'd give pretty good odds that no one will approve a mortgage for your boyfriend under those circumstances. Checking at places that focus on "first time buyers" is the easiest way to confirm this (or not).
And it's really not clear that it is less expensive to own than to rent, as others have noted - property taxes, property insurance, and maintenance are all non-visible costs that homeowners pay; plus monthly payments will be higher than you might expect if you don't/can't pay closing costs and you put little money down as principal. Remember that for a lot of people, buying a house makes financial sense because (a) they get a mortage deduction on their federal income taxes [inapplicable to you], saving 25 to 35 percent of their payments, and (b) they hope to get appreciation in the value of the house [remember that you need a 6 to 8 percent gain to just break even, given real estate broker fees and closing costs].
More constructively: the best bet is to get a parent or relative (with good credit) to co-sign the loan. They'd have to really believe in your boyfriend to do so; co-signing isn't a trivial matter (nor is the paperwork that has to be signed in buying a house).
Finally, do consider that a student ought to be focusing on studies, rather than on all the responsiblilities that come with home ownership (including the time to find and buy a home - not trivial, to do it right - and to sell the home at a later time).
posted by WestCoaster at 9:47 AM on March 21, 2005
I purchased a condo for the duration of grad school. It is definitely possible, but like everyone else above, I would caution you that this is a decision that must be made very, very carefully.
One thing about banks: although it is true, as melissa may says, that the bank wants you to take the highest loan possible, it is also true that the bank doesn't want you to default on the loan. Especially in the first ten years of a thirty-year mortgage, nearly every cent of your monthly payment goes directly into the bank's pocket. Foreclosures are a hassle for them. So you can expect that they'll try to maneuver you into a high loan, but only as high as they think you can afford. It is a balancing act, but the they use very precise underwriting and actuarial methods, and this in some way protects you. Still, don't trust anything they tell you on blind faith. Do the math yourself. Anyway, the bottom line is that, if you can secure a mortgage, you can buy a property, and it's highly likely that you'll manage to make the payments. Bear in mind that any bank will look with some skepticism on your graduate stipend. You'll need letters that guarantee your pay rate, and maybe more. You may need to be somewhat creative with your financing sources -- but in the end, if you try to con the bank, you're really just conning yourself (because you won't be able to pay the mortgage).
It also helps if you have some upfront money. I returned to grad school from a well-paying industry job, so I had money to cover the downpayment and some set aside in reserve. You should expect to have to use this reserve at some point while you're in grad school; things break.
Avoid fixer-uppers. My place was fundamentally sound when I bought it, but somewhat run-down on the surface (that's how I was able to afford it). I thought I would have time to fix it up a little. It turns out that grad school doesn't really allow for this type of time (and when it does, you'll be broke anyway). Thank god I didn't buy a place which was in need of major repairs.
Do not buy property on the premise that it is cheaper than rent. It is not. Your mortgage, taxes, and other fees on anything you can afford to buy will probably be about the same as the rent on anything you can afford to rent. In the time it takes you to get your degree, you won't build any significant equity. There will be some tax-savings, but honestly, for whatever mortgage you can afford on your measly stipend, it probably won't be more than a few hundred dollars a year. The only way you might conceivably come out better financially over rent is if your property appreciates -- in short, if you get lucky in the property speculation market. In the current housing market, that's probably a bad idea.
So why buy? The only real reason is if you'd like some stability. If you don't want to move every year or so, if you don't mind being a landlord to your roommates, and you don't mind being responsible for anything that breaks, then you might do ok. I had a string of really crappy landlords before I bought property, and I don't have to worry about stuff like that anymore. So it basically worked out for me. But I'm not sure I would have been any worse off renting.
posted by casu marzu at 9:56 AM on March 21, 2005
One thing about banks: although it is true, as melissa may says, that the bank wants you to take the highest loan possible, it is also true that the bank doesn't want you to default on the loan. Especially in the first ten years of a thirty-year mortgage, nearly every cent of your monthly payment goes directly into the bank's pocket. Foreclosures are a hassle for them. So you can expect that they'll try to maneuver you into a high loan, but only as high as they think you can afford. It is a balancing act, but the they use very precise underwriting and actuarial methods, and this in some way protects you. Still, don't trust anything they tell you on blind faith. Do the math yourself. Anyway, the bottom line is that, if you can secure a mortgage, you can buy a property, and it's highly likely that you'll manage to make the payments. Bear in mind that any bank will look with some skepticism on your graduate stipend. You'll need letters that guarantee your pay rate, and maybe more. You may need to be somewhat creative with your financing sources -- but in the end, if you try to con the bank, you're really just conning yourself (because you won't be able to pay the mortgage).
It also helps if you have some upfront money. I returned to grad school from a well-paying industry job, so I had money to cover the downpayment and some set aside in reserve. You should expect to have to use this reserve at some point while you're in grad school; things break.
Avoid fixer-uppers. My place was fundamentally sound when I bought it, but somewhat run-down on the surface (that's how I was able to afford it). I thought I would have time to fix it up a little. It turns out that grad school doesn't really allow for this type of time (and when it does, you'll be broke anyway). Thank god I didn't buy a place which was in need of major repairs.
Do not buy property on the premise that it is cheaper than rent. It is not. Your mortgage, taxes, and other fees on anything you can afford to buy will probably be about the same as the rent on anything you can afford to rent. In the time it takes you to get your degree, you won't build any significant equity. There will be some tax-savings, but honestly, for whatever mortgage you can afford on your measly stipend, it probably won't be more than a few hundred dollars a year. The only way you might conceivably come out better financially over rent is if your property appreciates -- in short, if you get lucky in the property speculation market. In the current housing market, that's probably a bad idea.
So why buy? The only real reason is if you'd like some stability. If you don't want to move every year or so, if you don't mind being a landlord to your roommates, and you don't mind being responsible for anything that breaks, then you might do ok. I had a string of really crappy landlords before I bought property, and I don't have to worry about stuff like that anymore. So it basically worked out for me. But I'm not sure I would have been any worse off renting.
posted by casu marzu at 9:56 AM on March 21, 2005
...the insurance and property taxes are rolled up in to the mortgage. When you sit down with a realtor and bank and actually look at the terms of the mortgage, those are line items that included in the mortgage payment.
Gus, you're right, taxes and insurance are frequently calculated in when working with a realtor and lender. But since it doesn't sound as if Sally and her boyfriend have met with either a realtor or a lender yet, I was referring to the "estimated payment" feature on many realtor's websites. Those payments sound deceptively affordable because they don't include taxes and insurance, and because they also assume a 20% down payment. It's best to rework that calculation to fit your own financial parameters, which will give you a more accurate idea of the payment on any given house.
posted by boomchicka at 10:02 AM on March 21, 2005
Gus, you're right, taxes and insurance are frequently calculated in when working with a realtor and lender. But since it doesn't sound as if Sally and her boyfriend have met with either a realtor or a lender yet, I was referring to the "estimated payment" feature on many realtor's websites. Those payments sound deceptively affordable because they don't include taxes and insurance, and because they also assume a 20% down payment. It's best to rework that calculation to fit your own financial parameters, which will give you a more accurate idea of the payment on any given house.
posted by boomchicka at 10:02 AM on March 21, 2005
Having bought a house recently (as in, w/in the last two years, in Alpharetta):
1. You can do as little as five percent down with a good lender (Wachovia, etc) and still get a good rate. You can get gifts for the downpayment (ie, monetary, from your parents/relatives). They will usually want to roll the property tax and the insurance in with it. It's just simpler. However, they will want you to keep x amount in escrow, and they will send you a note at some point that says, "Hello, you need to give us x for additional escrow" and you've got to do it. And, even though we pay the additional into the escrow account, our payments have still gone up a little in two years -- from 1137 or so to 1153.
2. I think I know you and I know that I know a good realtor. Drop me a line. (Seriously, I think you are someone I know IRL. Not being creepy, promise.)
3. Maintenance will cost you a fortune, fixerupper or no fixerupper. Sadly, you will need (probably) lawnmowers, (you will want) flowers, and there will only be a million things that you can't anticipate that you will need to spend money on. Painting just the rooms on the inside can begin to cost a lot of moolah.
posted by Medieval Maven at 10:42 AM on March 21, 2005
1. You can do as little as five percent down with a good lender (Wachovia, etc) and still get a good rate. You can get gifts for the downpayment (ie, monetary, from your parents/relatives). They will usually want to roll the property tax and the insurance in with it. It's just simpler. However, they will want you to keep x amount in escrow, and they will send you a note at some point that says, "Hello, you need to give us x for additional escrow" and you've got to do it. And, even though we pay the additional into the escrow account, our payments have still gone up a little in two years -- from 1137 or so to 1153.
2. I think I know you and I know that I know a good realtor. Drop me a line. (Seriously, I think you are someone I know IRL. Not being creepy, promise.)
3. Maintenance will cost you a fortune, fixerupper or no fixerupper. Sadly, you will need (probably) lawnmowers, (you will want) flowers, and there will only be a million things that you can't anticipate that you will need to spend money on. Painting just the rooms on the inside can begin to cost a lot of moolah.
posted by Medieval Maven at 10:42 AM on March 21, 2005
Whether or not it is actually cheaper to own or rent depends upon a lot of factors, but primarily it depends upon the length of time you stay in the home. I took a real estate course in college, and my professor said that he had calclulated numerous scenarios based upon varying interest rates, length of stay, tax brackets, etc. and that a good rule of thumb is that unless you will be in a house for at least 5 years it is likely that owning a home will be more expensive than renting. I recommend that you try some scenarios based on the calculator found here:
http://www.dinkytown.net/java/MortgageRentvsBuy.html
posted by bove at 10:44 AM on March 21, 2005
http://www.dinkytown.net/java/MortgageRentvsBuy.html
posted by bove at 10:44 AM on March 21, 2005
It's been five years since I've lived in Atlanta so who knows what has changed since then, but I found very affordable reasonably decent apartments, mostly in VA Highlands, Inman Park, and even Little 5. If you're looking for gated community apartments with fitness centers, on-staff security, and a washer, dryer, and dishwasher you're probably SOL but I would be surprised if the rental market had gotten so bad that you can't find a decent sized and clean, if simple, apartment within your grad student stipend price range.
posted by jennyb at 5:22 PM on March 21, 2005
posted by jennyb at 5:22 PM on March 21, 2005
Response by poster: Thanks for the great advice, everyone. To answer a few things, 1) I would live there but wouldn't own it with him (I'd pay rent), 2) he already lives in ATL and has an affordable apartment, but we'd both rather live IN the city (for environmental and personal reasons), and 3) yes, I do know you, Nikki! How funny that even the internet should be such a small world.
posted by sally_jp at 12:26 PM on March 22, 2005
posted by sally_jp at 12:26 PM on March 22, 2005
If you still happen to be checking this, my friend recommends Vivian Lacy as a realtor. Her e mail is her first name at atlantarelo dot com.
posted by solotoro at 11:38 AM on March 25, 2005
posted by solotoro at 11:38 AM on March 25, 2005
Response by poster: Thanks, Solotoro. If we decide to look into it, we'll check her out.
posted by sally_jp at 6:06 PM on April 2, 2005
posted by sally_jp at 6:06 PM on April 2, 2005
This thread is closed to new comments.
But ultimately, if you decide to seriously consider this, you're best off looking for a community university-type first time homebuyers course, where they'll educate you about the different loan types, how to calculate what you can afford, etc. The next step will be to get a guarantee of financing, and at that point you'll want to remember that it's in the lenders' best interest to get you to take the highest loan possible, while it's in yours to do the opposite.
Good luck to you -- what you want to do isn't impossible, but you'll want to be very, very careful about what you sign up for.
posted by melissa may at 12:34 AM on March 21, 2005