Buying a house as a PhD student

[geologygal]

Hi,

My partner and I are about to begin geosicence PhD programs. I have the NSF GRFP, as well as 2 more guaranteed years of funding, and he has guaranteed funding for the full PhD as well. He is currently working a full time salary job (has been for 2 years) and I am working hourly while finishing school (going to field camp this summer). We have a substantial amount for a down-payment, and are looking to get approved for a range where we'd still have a good bit of savings left to cushion, but in our preliminary conversations, lenders are not willing to give us a mortgage because 1) we won't be employed this summer when we would close on the house (will be starting in the fall) and 2) they don't understand the graduate student pay system (stipends etc). Does anyone else have experience with this? We are really frustrated. We can rent for ~6 months and consider buying again then, but I wonder if it'd be the same set of problems. We were really hoping to buy this summer....Any advice or anecdotes welcome!

Cheers! 

[Sparkybob]

Do you plan on staying in that area long term after finishing your PHD?

[guest56436]

^ Yes, and...

What's the price-to-rent ratio of your area?

Edited April 10, 2018 by Comparativist

[Humulus_lupulus]

I'd recommend getting a parent or another reliable adult to co-sign. It's stupid because you clearly have enough money, but the semester-to-semester basis of most grad stipends is not "stable" enough for banks to consider it income. Although, they can't protect against someone buying a house and then both people getting fired from their job the day after they close. I've heard it is recommended you stay in a house for at least 5 years for it to be a worthwhile investment. Also...be prepared for EVERYTHING to break in your first year! Have a nest egg of at least $10,000 left for unexpected repairs.

[TakeruK]

I know plenty of grad students in geoscience programs that own houses! Maybe it is partly related to the fact that many of the best geoscience programs are in low cost of living places lol. 

I've only started the house buying process as a postdoc and it seems like they mostly only care about income at the time you are pre-approved and close the deal (most pre-approvals are good for a few months only). They don't seem to care that my postdoc has a termination date in 1-2 years, I guess they figure that if I have a job now, I can get another job in the future. However, frustratingly, my partner had a job but took time off for parental leave but they won't count my partner's previous income as earning potential. Oh well. We will probably wait until we're both working again to be able to afford what we want. 

Co-signing could be a good idea for you---we're considering it too. Right now, we are waiting to see whether our dual income would be enough to qualify for a mortgage we need. The big down side of co-signing is that all of our parents have retired (one of mine is working again because they are bored but they would like to stop soon) so if they co-sign, they need to keep working. They offered to do this because they are great people but I really don't want to make my parents keep working so that they can co-sign. 

There's a calculator (from the NYT, I think) that lets you figure out whether it is really worth it to buy for X years and sell or just rent for those X years. Personally, we're considering buying even though my postdoc is quite short because I really do intend to stay in the area if possible and because I plan on keeping it as a rental property if we do move away. But we'll see what happens. 

[rising_star]

Several years ago there was a robust conversation about this. Maybe try using the search feature to find it? I would also talk to a variety of lenders/mortgage brokers, including those from any banks or credit unions with which your new university has a relationship.

[itsjoya]

If you are planning to stay in that area for too long or permanently then it's okay to buy a house. 

[Adelaide9216]

I have a question about this, I'm interested into this conversation as well. If you've got guaranteed funding for Ph.D., what happens if you quit your program or finish later than what you had expected? 

[TakeruK]

3 hours ago, Adelaide9216 said:

I have a question about this, I'm interested into this conversation as well. If you've got guaranteed funding for Ph.D., what happens if you quit your program or finish later than what you had expected? 

Do you mean for the mortgage or for the funding from the school? For the mortgage, I am not sure but you would still owe them money etc. There may be insurance or other things you can buy to protect your ability to pay the mortgage but this is outside of my experience.

For the school funding, if you quit your program, then depending on the source of the funds, you may have to repay part of the money awarded to you. I know some people who left their PhD programs in the middle of a term and they had to repay all non-employment sources of income to the school for that term/semester. That is, they did not have to pay back money earned from TA work (and in fact had to stay and finish their TA contract) but the university/department fellowships had to be repaid. For some others, they didn't have to repay the money from the semester but they just immediately stopped getting any further payments. This is why if you plan on quitting, it is important to read the fine print and it is usually much better to quit at the start of a term instead of in the middle of one, if possible.

For finishing later, your offer letter will usually let you know if there is a time limit on your funding. You should talk to the department to find out their funding policies for students who stay beyond their funding offer. Some programs guarantee you funding for as long as it takes, while others only promise funding for X years and then you may still receive funding via TA/RA etc but only if the money is available. I know some PhD students who have to drop to part time and find other work in their last few years in order to earn money (e.g. teaching at nearby schools). 

[lemma]

I'm on the market to buy a house at the moment but we haven't gone to the banks yet to get a letter of credit. We will probably do that shortly, so I can loop back with my experience. We're not US based though, my partner is on a salary and we do have money saved up for a deposit. Maybe I'll pick up some tricks though along the way. 

[Crucial BBQ]

I have been a home owner for the last eight years.  Although I am not in. Ph.D. program here are somethings to consider:

1.  If you are a first-time homebuyer, don't have 20% to put down (or don't want to), and receive an FHA backed/insured loan you will be required to pay for mortgage insurance each month until the equity in your home reaches a value that would equal the amount of what would have been the amount of the original 20% downpayment.  Aside from being charged a premium for the privilege of obtaining an FHA loan, the monthly insurance payments were an extra $275 or so for me on top of the mortgage payments.  As such, I couldn't go with a 20 year loan or less, meaning that it was taking a long time to pay down to that 20% mark.  However, I got lucky in a way;  last year I had my home accessed and it is now worth $40K more than what I had originally paid.  The luck was that because of the new home value in combination with the equity I had already built, I had more than satisfied that 20%.  I had also recently refinanced for the value of the original loan and one with a shorter life-span.  I was able to use the difference between the total amount and what I had already paid off to pay off the loans I had for new roof, new windows, and new floor.  I was also able to pay off one credit card and then roughly half of another card.  I am also no longer paying that extra $275/month. 

2.  Instead of looking for a financial institution to work with look instead for someone who does mortgages.  Of course you'll end up going through the financial institution they work for but people tend to be more empathetic when you meet with them face-to-face outside of their work and even more so if you have been referred to them.  Everyone who owns a home has someone who is managing their mortgage. If you don't know any homeowners in your area at the very least start asking faculty, staff, students, and so on at your school.  This is how I had ended up with my mortgage person, but not through school.  

[geologygal]

This has all been super helpful--we are shopping in an area and price range such that we will have a good amount left over the 20% downpayment (we are trying to shop cheaper at the start/give ourselves a range to offer up as the market we are shopping in is appreciating at the moment). We've encountered 3 sets of pushback (USAA, Chase, and a local credit union) on the form of our income, but we're still hopeful we can find someone willing to work with us. We have the option to co-sign, but similar to @TakeruK that would require my mom to put off retirement...I appreciate the tip from @Crucial BBQ on local connections--we've gotten down about it the last few days, so it's good to know that humans out there still care/that this has been done. 

[TakeruK]

My family here has also suggested finding a mortgage person. Here they are called "Mortgage Brokers". There's no fee because the banks pay the brokers a commission for finding a client for them. I've now heard of many people who were turned away when applying to banks/credit unions directly but succeeded with a mortgage broker. I think the only instance where it might make sense to try to work with the bank directly first is if you already have a good long standing relationship with a bank (i.e. long time customer, put all your money there, have investment products etc. with them etc.)

[Bird Vision]

5 hours ago, adamhenry said:

I like the plan to buy a home. After completing the study, you can quickly sell the house, and I think the selling price more than the buying. You could make a profit also.

It's significantly more complicated than this. Most people say that you should own a home for AT LEAST five years, and that's only to break even. If you have enough money for a down payment, you're likely much better off throwing into an ETF and saving yourself the headache of home ownership.

If you're going to stay in an area after your PhD, that's one thing. Otherwise I say (in most cases) just rent.

[Boolakanaka]

In short, if you got a partner in a full-time position, relative to the cost ratio of the house and income, you should be good. Even when my wife was doing a sub-fellowship for medicine, and previously made plus 350k annually, the bank  did not consider her paid sub-fellowship, despite it paying close to 80k as being qualified for a permanent position and would not count it as income going towards a purchase for a house. Mainstream banks are fairly strict about this definition.

[Bird Vision]

3 hours ago, Boolakanaka said:

In short, if you got a partner in a full-time position, relative to the cost ratio of the house and income, you should be good. Even when my wife was doing a sub-fellowship for medicine, and previously made plus 350k annually, the bank  did not consider her paid sub-fellowship, despite it paying close to 80k as being qualified for a permanent position and would not count it as income going towards a purchase for a house. Mainstream banks are fairly strict about this definition.

I believe this still misses the point I was making: houses are basically terrible investments. Your opportunity cost + repair expenditures will likely end up being more than the money saved by not renting. This does not even factor in the heartache of buying a house or the stress of selling it.

 

Sure, you might be able to pay for it, but why would you? Most of us are not in a reasonable position to buy a house. Renting is not this evil thing that will ruin your life. Don't try to keep up with the Joneses. You're in grad school, your life/career path has already deviated - this is one of those effects.

[Boolakanaka]

With all due reference, my answer is to this direct question and request:We can rent for ~6 months and consider buying again then, but I wonder if it'd be the same set of problems. We were really hoping to buy this summer....Any advice or anecdotes welcome!

To which, I offered a specific anecdote ....

[Quickmick]

Hi everyone! After earning my MS and deciding to stay for the PhD my wife and I bought a house, then bought a different one a year later. A big part of the equation is how much your payment will be vs your income. My wife was using the GI bill, which they would not count as income, just as they may not want to count hourly income. While I am funded in the summer, that didn't come up. I just told them what my annual salary was (which at the time was not much). I had zero debt that had to be counted against me, excellent credit, and a large down payment. That being said, we bought a very small house in a marginal neighborhood. The neighborhood was dodgy enough that we moved in a year. They wouldn't approve me again until the first house had been sold, so I rented it out instead and was able to count the rental income as a 'plus' on the balance sheet.

I understand the math on the 'break even timeline' but it doesn't always hold. We bought both places at discounted prices and  have renovated them both. We did the work (including installing oak hardwood floors--a lot of sweat equity) and when we sell them we will make money regardless of the length of ownership. I found the work gave me time to reflect and puzzle over my academic pursuits.

Just a couple of tips:

really make sure you know/like the neighborhood before you buy.

Don't tell the mortgage company things they don't ask.

As a PhD student I was salaried (which mortgage company likes) but they REALLY don't like 'part-time' and as a student I am at 20 hrs week. However, when I said that I am not part-time, I am half full-time the mortgage brokers said, "I can work with that." Crazy but true. 

PM me if you want the name of the mortgage co.

Good luck,

qm