Buying vs. Renting during Grad School

[Domino]

Thanks juilletmercredi, you brought up some very good points.  I keep thinking in terms of dollars and cents, but you're right, there are many other issues to consider.  It may very well be that factors like time and mobility can outweigh the financial variables, and I'll have to think long and hard about what will be best for my situation.  Thanks for the input!

[PoliSci2016]

Just accepted a graduate assistantship for a doctoral program this fall and I'm wondering whether that is always filed under a 1099 and qualifies as self-employment, like a previous poster said? Or is it sometimes a W-2 and considered employment? 

I'm interested in buying a house when I move (to Baton Rouge to go to LSU), but I'm trying to figure out whether it's going to be possible to get a mortgage. I would also be buying alone, (no cosigner) with dicey credit, probably with an FHA loan. On the plus side, though, I'll have enough for a 10% down payment and Baton Rouge has plenty of affordable real estate.  Also thinking about building a new house, unless that's really impossible to finance with a graduate assistantship (it would be a small house).

Would credit unions be the best place to try or would I possibly qualify for an FHA loan through a non-credit union bank? 

[rising_star]

@PoliSci2016, without knowing the amount of your stipend, it's impossible to say what your loan options would be. In general, you're capped at borrowing 3-4x of your annual income. If your stipend is $20K, that'd give you a max loan amount of probably $75K unless you have substantial savings. Building a home can be complicated in terms of loans and also because of the potential for overages. I would talk to loan officers at local banks and credit unions once you move to get a sense of what your options are. There may also be first time homebuyer programs locally which can offer better loan options, so that's something to Google around for and ask about. 

As far as I know, basically all graduate assistantships issue you a W-2, rather than a 1099. You're not self-employed. You're employed by the university where you're doing research or teaching. 

Good luck!

[TakeruK]

4 hours ago, PoliSci2016 said:

Just accepted a graduate assistantship for a doctoral program this fall and I'm wondering whether that is always filed under a 1099 and qualifies as self-employment, like a previous poster said? Or is it sometimes a W-2 and considered employment? 

I'm interested in buying a house when I move (to Baton Rouge to go to LSU), but I'm trying to figure out whether it's going to be possible to get a mortgage. I would also be buying alone, (no cosigner) with dicey credit, probably with an FHA loan. On the plus side, though, I'll have enough for a 10% down payment and Baton Rouge has plenty of affordable real estate.  Also thinking about building a new house, unless that's really impossible to finance with a graduate assistantship (it would be a small house).

Would credit unions be the best place to try or would I possibly qualify for an FHA loan through a non-credit union bank? 

It really depends not only from school to school but also from person to person at the school!

Most graduate students will get W-2s if they are funded by graduate assistantships. My friends who are funded by fellowships get 1099-MISC slips (1042-S if you're international). It's hard to know for certain which tax form you will get because even if you work as a TA or RA, you might still be paid as a fellowship (i.e. they consider your TA or RA work as part of your education instead of employment). You could contact your school now and ask if they would know what slip they will produce (they might not be able to answer until you are fully entered into the system though, i.e. after you arrive).

[PoliSci2016]

Ok thank you both! I'll check, but LSU refers to it as employment so a W-2 does make sense. 

Does anyone know if student loan money can count as income...? That's the probably the deciding factor, actually. Or I guess I could save it, if necessary, and put it toward the down payment if it won't help me qualify for a larger mortgage payment.

[rising_star]

16 hours ago, PoliSci2016 said:

Does anyone know if student loan money can count as income...? That's the probably the deciding factor, actually. Or I guess I could save it, if necessary, and put it toward the down payment if it won't help me qualify for a larger mortgage payment.

I'm pretty sure it doesn't count as income. It also increases your debt to income ratio, which will lower the total mortgage amount you can qualify for. If you're having trouble with the downpayment, then look into things like FHA loans and targeted first-time or low-income homebuyer programs, many of which offer downpayment assistance. Also, another thing to consider is that Stafford loan rates are higher than mortgage rates right now...

[madbiochemist]

On 4/17/2016 at 1:10 PM, TakeruK said:

It really depends not only from school to school but also from person to person at the school!

Most graduate students will get W-2s if they are funded by graduate assistantships. My friends who are funded by fellowships get 1099-MISC slips (1042-S if you're international). It's hard to know for certain which tax form you will get because even if you work as a TA or RA, you might still be paid as a fellowship (i.e. they consider your TA or RA work as part of your education instead of employment). You could contact your school now and ask if they would know what slip they will produce (they might not be able to answer until you are fully entered into the system though, i.e. after you arrive).

Yep, I'm on a fellowship and get a 1099-MISC as well. I was thinking about buying a house with my fiance, but we've decided against it for now. Primarily because our lease is up in a few months and I don't want to be worried about house hunting during finals. An interesting option that I haven't seen mentioned yet is that you don't need to sell your house after 5 years. You could turn it over to a management company and let them rent it out until the market bounces back, if you needed/wanted to.

[Pink Fuzzy Bunny]

For what it's worth, I was explicitly told by every advisor I've spoken to that graduate students should rent instead of buy. At least in my program, 2/3 of students will be kicked out, and you don't want to be stuck with a mortgage, so consider that.

[TakeruK]

45 minutes ago, Pink Fuzzy Bunny said:

For what it's worth, I was explicitly told by every advisor I've spoken to that graduate students should rent instead of buy. At least in my program, 2/3 of students will be kicked out, and you don't want to be stuck with a mortgage, so consider that.

I think the advice would vary a lot from location to location. I visited the school you will attend (from your signature, but the astro/space sciences dept, not physics) and many grad students there have purchased homes. There were also other places where houses are so cheap that students can afford to buy.

To me, hearing a professor say that 2/3 of students will be kicked out is pretty alarming! I mean, there's normal attrition due to students finding other opportunities, choosing to leave, and occasionally a student failing, but 2 out of 3 students failing does not sound normal to me! (My school has about 70% of students leaving with a PhD, 90% leave with a Masters or PhD, and only 10% leaving with no degree at all).

[Pink Fuzzy Bunny]

18 minutes ago, TakeruK said:

I think the advice would vary a lot from location to location. I visited the school you will attend (from your signature, but the astro/space sciences dept, not physics) and many grad students there have purchased homes. There were also other places where houses are so cheap that students can afford to buy.

To me, hearing a professor say that 2/3 of students will be kicked out is pretty alarming! I mean, there's normal attrition due to students finding other opportunities, choosing to leave, and occasionally a student failing, but 2 out of 3 students failing does not sound normal to me! (My school has about 70% of students leaving with a PhD, 90% leave with a Masters or PhD, and only 10% leaving with no degree at all).

Oh yikes, I should clarify Cornell is NOT like that (hallelujah!), but many other top schools are unfortunately. It's one of the many reasons I decided to go to Cornell.

[ETRXRock]

I purchased my first home with my husband during my last two years as an undergrad. Some days I wish I was back in an apartment due to the time I had for upkeep. As I relocate for grad school, I sold my home and will be moving out next month. The selling process and buying process are both time consuming. For my masters, I am going back to an apartment, but will consider purchasing for when I begin my PhD. If you are considering buying to live for two years as a masters, it is not worth it. I was fortunate to build some equity during a short time. Remember, when you buy, you are paying interest the first year (sometimes 2), and your principle remains the same unless you pay extra on your mortgage. I was fortunate to build some equity and my house appraised at a much higher price as compared to other homes in the neighborhood. I will not make this mistake again as most agents we spoke to prior to selling said we will most likely owe when we sell our home since we only had it for 2 years and suggested a much lower selling price than we anticipated. Of course, we went with our gut, sold it for a price so we can make a good profit.

[zipykido]

If you can buy a place with one more room than you need then you should do it. I have friends who bought when they first entered grad school and their renters essentially pay for the mortgage and tax on the property. I have another friend who bought a cheap place when he first got to grad school but he bought too far out from the college and he'll probably barely break even when he graduates in terms of renting vs buying. I too was looking to buy a place but my price range wasn't near high enough for some of the nicer places that I wanted so I decided to rent which isn't horrible considering I found a great place, I'll keep saving money for a down payment for wherever I end up next. After closing costs and fees you still only really break even in the 4-5 years that you're in grad school unless you buy with mostly cash and have housemates. 

[spectastic]

it appears that most people hold the notion that when they graduate, they are obligated to sell the property. I don't understand this. If you can find a deal, especially a condo that's relatively low maintenance, and the mortgage is lower than the average rent in the area, then you have the opportunity to generate cash flow on that property, and have another revenue stream. I think the risk can be minimized with proper due diligence on market trends, fees/interest/taxes and the property itself. But other than that, what am I missing?

Also, how are you guys finding places for sale? real estate agents? local listings? word of mouth? craigslist? how much time do you invest in this type of stuff?

[Usmivka]

23 hours ago, spectastic said:

it appears that most people hold the notion that when they graduate, they are obligated to sell the property. I don't understand this. If you can find a deal, especially a condo that's relatively low maintenance, and the mortgage is lower than the average rent in the area, then you have the opportunity to generate cash flow on that property, and have another revenue stream. I think the risk can be minimized with proper due diligence on market trends, fees/interest/taxes and the property itself. But other than that, what am I missing?

Also, how are you guys finding places for sale? real estate agents? local listings? word of mouth? craigslist? how much time do you invest in this type of stuff?

In our case, we are obligated to sell--it is an affordable housing unit and the city has a clause on the deed requires that we live there or sell.

Even if this was not a requirement, we plan to leave the area and have no interest in being absentee landlords. Even with a reputable management company in your price range, you are legally responsible for a number of health/safety/occupancy issues and on the hook, if say, your cruddy tenants damage the building or violate housing ordinances (with fines levied by the city). Also, in a condo, I would argue you have some ethical duty to your neighbors not to turn your unit into a rental unless you plan to be very involved in managing it to minimize turnovers and ensure your tenants are considerate. In my experience, (student) renters are generally worse neighbors than owners and one bad renter can disproportionately reduce quality of life for several units around them.

That's just my personal take on it though, I'm not judging you for contemplating alternatives!

I used Trulia and Zillow primarily. Real estate brokers also post listings to their websites. I think I spent ~25 hours a week for three months on the house hunt and mortgage approval process, but some weeks took more time. It became my weekend and evening hobby.

__

PS since this thread is still getting attention: we will end up selling our place this fall for a profit of $60k, better than I anticipated. So the net difference compared to renting at our former rate (~-$1300/mo) is ~+$125k after 4 years. Maybe better since our condo utility rates are much lower than the apartment was. That difference means that aside from more expendable income (I buy lunch sometimes! Amazing!), we now both have decent retirement accounts and enough for a down payment on our "forever" home. Having started with pretty minimal savings, this feels good. But we also totally lucked out in a number of ways, such as finding a mortgage at a good rate and graduating from undergrad without debt.

Edited May 23, 2016 by Usmivka

[spectastic]

13 hours ago, Usmivka said:

In our case, we are obligated to sell--it is an affordable housing unit and the city has a clause on the deed requires that we live there or sell.

Even if this was not a requirement, we plan to leave the area and have no interest in being absentee landlords. Even with a reputable management company in your price range, you are legally responsible for a number of health/safety/occupancy issues and on the hook, if say, your cruddy tenants damage the building or violate housing ordinances (with fines levied by the city). Also, in a condo, I would argue you have some ethical duty to your neighbors not to turn your unit into a rental unless you plan to be very involved in managing it to minimize turnovers and ensure your tenants are considerate. In my experience, (student) renters are generally worse neighbors than owners and one bad renter can disproportionately reduce quality of life for several units around them.

That's just my personal take on it though, I'm not judging you for contemplating alternatives!

I used Trulia and Zillow primarily. Real estate brokers also post listings to their websites. I think I spent ~25 hours a week for three months on the house hunt and mortgage approval process, but some weeks took more time. It became my weekend and evening hobby.

__

PS since this thread is still getting attention: we will end up selling our place this fall for a profit of $60k, better than I anticipated. So the net difference compared to renting at our former rate (~-$1300/mo) is ~+$125k after 4 years. Maybe better since our condo utility rates are much lower than the apartment was. That difference means that aside from more expendable income (I buy lunch sometimes! Amazing!), we now both have decent retirement accounts and enough for a down payment on our "forever" home. Having started with pretty minimal savings, this feels good. But we also totally lucked out in a number of ways, such as finding a mortgage at a good rate and graduating from undergrad without debt.

good info.

and no judgement taken. I just think it's totally plausible to narrow down the tenant pool to graduate students, as opposed to say.. freshmen (don't mean to generalize, just common sense), and open the doors to young professionals as well. In addition, hopefully grad school doesn't render us total hermits to society in that we actually have time to get out, meet people, and develop relationships, because I think the ideal scenario is to have someone you know live there. There's mutual trust, and greater probability for a long term tenant that's also low maintenance.

 

25 hours/week? call me sally. I suppose it never hurts to learn more. I mean.. 125k savings? that's not chump change. 

Edited May 24, 2016 by spectastic