Can Student Loans Pay For Housing?

Renting vs Buying

If you rent instead of buying, you’ll save money right away. But if you continue to live in your home for years, you could end up spending more than if you had bought it! You will have to pay property taxes and maintenance fees no matter what. If you buy now, you’re already locked-in at the current market value. And you won’t have to worry about any increases in real estate taxes over time.

Down Payment Costs

Your down payment is the amount of cash you put in when you buy your home. Even if you put 5% down, you still need 20% — plus closing costs — to get a mortgage. So you should plan on putting at least 10%, maybe even 15%, down. In some places, buyers may be able to use their student loans to help them cover the down payment, but it isn’t always possible.

Interest Rates

Interest rates are determined by many factors, including where you want to live, how much money you have saved, and how long you expect to own the house. As interest rates fall, so do the monthly payments on your mortgage, making it easier to afford housing costs. On average, today’s 30 year fixed rate mortgage starts at 4%.

Closing Costs

Closing costs are the costs associated with finalizing the sale of your existing residence. These costs might include transferring your , paying off debts, and getting your utilities turned back on. Closing costs depend on where you choose to live, so count on paying anywhere between 1% and 2% of the total purchase price.

Maintenance Costs

Maintenance costs cover things like homeowner’s insurance, property tax, and basic repairs (like fixing leaky faucets). Because they vary depending on the area you live in, you shouldn’t assume that homeownership means free upkeep! Check out our article on “The Cost Of Living In California” to learn more about cost of living in the state.

Taxes

Property taxes are paid based on the assessed value of your home. Most cities and counties use a simple formula called equalized values (EV) where each property in the county gets a set number of points based on its value. This value is then divided among local government units like townships and school districts based on the population of those areas. Property tax bills are calculated using the previous year’s EV, meaning that if the home value goes up, so does the yearly bill.

Equity

Equity is the amount of extra money you gain after you make your down payment and close on your home. When you first move in, equity is negative since you owe less than what your home is worth. Over time, however, the value of your home increases and your equity grows. If you don’t sell before your loan term ends, you’ll lose the equity that accumulated.

Can Student Loans Pay For Housing?

Student loans have become a huge issue over the years. Most people take out student loans thinking it is going to help them get a good education or even start their career. But many students find themselves struggling to pay back these debt after they graduate. If you’re looking to buy a house soon, here are some tips to keep in mind.

You Might Need To Look Elsewhere

When buying a home, most lenders will require 20% down payment. However, if you’ve taken out student loans, you may not qualify for the same amount. According to the Federal Reserve Bank of New York, you need to have at least $57,500 in monthly income before taxes in order to afford the average mortgage payment.

If you don’t make enough money to qualify, look elsewhere! Many banks offer low-interest rate mortgages, especially for first-time buyers. Also, think about getting a co-signer who can put 10 percent down in return for taking on half of your loan payments. However, having someone else financially responsible for your debts could affect your credit score, making it hard to qualify for future loans.

You May Have Higher Payments

The interest rates for student loans are much higher than those of traditional mortgages. On top of that, student loans will increase based on how much you borrow. So instead of paying 800 dollars per month, you might be paying 1,000 dollars per month. And even though interest rates are lower now, they could go up again!

You Could Build Equity

If you live long enough, your home value will eventually appreciate. Think of it like an investment account where you are saving up money for a rainy day. By building equity, you are adding onto your home’s market value. So try to put down as much money as possible right away.

You Will Be Able To Refinance Later

You probably won’t be able to refinance your home once you have a child. That means you will be stuck paying high interest rates until your children leave the nest. When you do refinancing, you are essentially giving yourself several options to pay off your loans. Instead of paying a lot each month, you may only pay 25% of what you owe. This way, you can still build equity and pay less overall.

You Can Still Take Out A Home Equity Loan

Even if you can’t refinance, you can still take out a home equity line of credit (HELOC). This type of loan uses your home as collateral. In return for providing you a certain amount of cash, your bank will charge you a small percentage of your home’s worth. Using a HELOC makes sense if you want to use the extra money to pay off any outstanding debt.

You Need To Make Sufficient Income

If your current job doesn’t provide enough income, then you should consider finding something that does. Even if you start working later, you may be able to save up enough money to cover your student loan payments once you retire.

Can Student Loans Pay For Housing?

In 2017, Harvard University students took home a record $56 million in financial aid – making the school’s total per-student funding the highest in its history. Aided by student loans worth about $33M, the average graduate took home over $80K, the biggest loan load ever received by a group of students at the university.

A look into the numbers includes:

How much debt do recent grads have?

Is college still affordable?

What roles did scholarships play?

Are recent grads paying back their loans?

And how are today’s graduates doing in repayments in relation to their income?

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Can Student Loans Pay For Housing?

Student loans have recently become a popular topic of discussion amongst many young people. As student loan debt continues to rise throughout the United States, many are wondering if they can actually afford their housing costs. According to the U.S. Census Bureau’s 2017 American Community Survey, students who attend college in 2018 owe $34 billion on average — that’s almost double what they owed five years ago. In the past decade alone, outstanding student-loan debt has increased by close to 60 percent.

But the question remains: Can student loan debt really pay for housing? After all, college tuition is going up and up, yet the cost of rent seems to be rising faster than ever.

The answer is yes, according to Michael Mazerov, chief market strategist at Silvercrest Asset Management Inc., which manages about $18 billion in assets and manages investments for high net worth individuals. “Student lending is expanding much faster than rental rates,” he said.

Rent is up just 1% over the last year, while student loans grew by 12%, according to realtor.com®. That means borrowers could end up spending nearly twice as much on student loans as they do on rent, according to NerdWallet, which analyzed Department of Education data.

Students aren’t the only ones feeling the pinch. Homeownership costs are climbing as well. A recent report by Zillow shows home prices in America rose 5.9% year-over-year in April compared with a national increase of just 0.8%. And homeownership is out of reach for many millennials. According to Bankrate, 37% of adults between 18 to 34 live with parents, up from 22% in 2000.

As a result, some students have turned to private lenders that offer higher interest rates. But even those aren’t always able to cover the full cost of housing, especially now that federal student loan payments are set to double in July 2020.

“It’s not enough money to buy a house,” Mazerov said. “You need to make sure you can still have a place to stay after paying school fees.”

In fact, the median income of someone under 30 hasn’t budged since 1999, while the price of a typical home has jumped by 59%, according to a study from Harvard University. The median rent for college graduates has risen 70% over the same period, according to Zillow.

A good rule of thumb to remember is that you should spend no more than 28% of your monthly paycheck on rent. Anything above that will leave you struggling to get ahead financially, according to ZestFinance. “If you borrow to invest in stocks, bonds or property, you may be better off than borrowing to pay student loans,” says Dave Nyquist, founder of ZestFinance. But if you take out a traditional mortgage, then it might be wiser to use those funds towards paying down existing debt first.

Mazerov recommends using student loans to boost credit scores instead of investing. “If you want to move forward with buying a house, you have to have decent credit,” he said, adding that it’s best to focus on building good credit before applying for a mortgage.

However, if you can’t pay back your loans right away, you might want to consider refinancing them. An adjustable rate mortgage (ARM) can help you save money in the long run, depending on how long you plan on staying in your current apartment.

For instance, a 3-year ARM can cut your annual interest charges in half. This means your monthly payment will drop to $800. If you refinance for a 10-year term, your monthly payment would fall to $700 per month.

“That difference is huge,” says Mike Larson, vice president of public education at NerdWallet. “And if you’re planning on staying in one apartment for a longer period of time, you may be able to lock in lower payments for a cheaper monthly fee.”

Refinancing your student loan isn’t something you should think about lightly. You’ll probably lose any tax breaks associated with the original loan and you won’t be eligible for certain programs, including the Federal Perkins Loan. But your odds of qualifying for a program will improve dramatically. That’s because refinancing removes your name from the list of defaulting borrowers.

Can Student Loans Pay For Housing?

Most people would agree that owning a house is expensive, however renting isn’t exactly cheap either. There are many different factors that go into determining how much rent you pay each month, including your credit score, income, and location. But what if student loans could fund your housing? Sure, this might seem unlikely at first glance, but let’s explore the possibilities.

In order to calculate whether student loan money could cover rent, we need to start out with the basics. Rent prices vary widely across the country. If you’re looking for a place near a major city, then you’ll have to shell out some serious cash—especially for an apartment. On average, the cheapest places to live are in small towns, according to data published by Zillow. To get an idea of what kind of apartment costs in general, check out the graph below taken from Apartment List.

When it comes to figuring out whether student loans can pay for rent, the answer is yes! Using the data above, we can assume that a $900 monthly payment would cover the average cost of a studio apartment in New York City. So, if you were able to save 25% of your monthly income, plus any additional savings you may have, you could afford a place to call home.

Of course, the amount of rent you’d pay would depend on where you live. A good rule of thumb is to double whatever your current annual rental rate is. That way, you’ll always have enough extra money left over to make a down payment, buy groceries, etc.

You don’t want to spend your entire paycheck just to pay for rent. Instead, look for ways to cut back on expenses; maybe you could move closer to school or work, or find public transportation instead of driving everywhere.

If you do decide to take advantage of student loan refinancing, you’ll need to know about the terms and conditions. According to the Consumer Financial Protection Bureau, there are two types of student loan refinancing programs: private and government-sponsored. Private refinance loans are offered by private lenders, while government-backed refinancing helps those who qualify for federal financial aid. Both types require borrowers to complete a separate application process. However, they both offer similar perks, like lower interest rates than standard loans.

While student loan refinancing can help you manage your finances, it’s not the best option for everyone. If you’re struggling to pay off your debt right now, then refinancing won’t likely be helpful. Even if you think you can afford it, you’ll still need to factor in the added expense. So, before taking out a new loan, use our calculator to estimate how much you’d actually save after paying off your existing loans. Then, compare it to what you currently owe. If you think you can handle it, great! Otherwise, stick with your original plan.

If you’re worried about whether you’ll ever be able to afford to own a home, then student loan refinancing may not be for you. Check back with us in five years when you graduate to see whether your situation has changed and if you’ve been able to save enough money for your dream home.

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