College Connect: Mortgages and homeownership could benefit some students over apartment rentals in the long-run

Posted By Crystal Beasley

By Lindsey Conway

For most college students, homeownership is not at the top of the to-do list.

But Ashley Panter, who has owned two homes since graduating with her bachelor’s degree in public relations from Augusta University in 2012, said more should consider it.

“The reason I bought a home was just the affordability of it compared to renting,” said the current University of Georgia master’s student in emerging media.

Instead of simply paying rent to inhabit a space in Atlanta where she worked between her two degrees, Panter invested in and eventually made around $20,000 off the sale of her home when she moved to Athens.

Panter’s case exemplifies a concept Andrew Carswell, an associate professor of financial planning, housing and consumer economics at the University of Georgia, likes to call “the housing piggy bank.”

As a homeowner makes payments on a mortgage, a loan usually taken out from a bank to help pay for the cost of a house, a portion of these payments are applied to paying off the principal of the loan, allowing the homeowner to build equity – or ownership – in the real estate. The majority of the payment in the early years of the loan pays the interest on the loan.

For example, if a person decides to buy a $200,000 home, this homeowner will likely contribute an initial amount of cash called a down payment of around $40,000 and take from the bank a mortgage of $160,000. In this situation, the owner would pay possibly a $1,000 payment each month for 30 years on their mortgage. At about a 6 percent interest rate, around $960 of the payment would go toward interest to the bank and $40 to the homeowner’s equity in the early stages of the payment schedule.

But, by the end of the 30 years, Carswell said more of the payment would go toward the value of the home, so the homeowner would see $960 of their $1,000 monthly payment going toward equity and $40 toward interest.

“It’s sort of a forced savings plan,” Carswell said. “Although instead of a piggy bank, you have your house, and equity stays in your house.”

The value gained by the homeowner through the equity of the house is a bonus renters do not see, as their payments go completely to the owner of the property.

“For instance, my sister rents a place with her friend … and each of them pay $400, so essentially they are just giving someone else money,” Panter said. “Whereas I own a home … and I’m paying the same price, and I’m actually putting my money toward the equity of the home, so when I get ready to sell it, all the money I put into it technically comes back.”

Another benefit of homeownership in college is its ability to build up a student’s credit, Panter said. Mortgages show lenders that a student can handle borrowing and paying back large sums of money, which in turn allows for the purchase of items such as cars or larger houses in the future.

For Panter, homeownership took the necessary hard work to reap the benefits, and she said if she had bought her first home as an undergraduate student, she would have needed a steady job.

The barrier to entry for many students interested in homeownership is obtaining enough cash to make a down payment.

“I saved a whole lot for six months and didn’t do a lot of things I would normally do and just cut expenses in order for me to have that down payment,” Panter said of buying her first home.

Closing costs, which Carswell explains as a “whole basket of things,” also present another set of challenges to students with little cash on hand. These costs can include anything from loan origination fees to house inspection fees.

“These pieces might not be very big costs, but when you accumulate them, it’s a few thousand [dollars],” Carswell said.

The money for or time put into the maintenance and upkeep of a house are also added costs for student homeowners, which renters do not face.

“You have to mow your own grass; you have to think about getting a home warranty, so that if your heating and air system goes out, you don’t have to pay the full amounts,” Panter said. “If your toilet breaks, you will have to pay for that.”

But, despite these challenges, Panter said if she went back and made the decision again, she would buy a house every time, saying the benefits far outweigh the costs.

For students interested in making a profit off of homeownership during or right after college, Carswell advises being “a super saver,” to “keep their credit under control” and to “stay away from private [student] loans.”

Government-sponsored loans typically have lower interest rates and are more tolerant of non-payment or payment reschedules.

“There are so many more economical and efficient loans in the public sector that it’s not worthwhile to go on the private route,” Carswell said. “That in and of itself helps to alleviate the debt burden of an additional mortgage on top of that.”

Panter, who believes homeownership can be a good option for anyone who can gather enough capital to make a down payment, reminds even the savviest of students not to “bite off more than [they] can chew.”

“Everyone wants to buy this super nice house and all these nice things, but you don’t want to be house rich and bank poor,” she said.

Lindsey Conway is a student at the University of Georgia’s Grady College of Journalism and Mass Communication.

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