By Erdenetungalag Erdenekhuyag
I am a student at University of Missouri who already have a mortgage. A home is typically the largest purchase for almost every student. The average home sale price in the U.S. is more than $300,000, according to the recent research conducted by St. Louis Federal Reserve Bank. That’s a lot of money for anyone, but especially for someone who may be paying for college too.
I wanted to share my own investment tip. I am from Mongolia where people can have a mortgage without any down payment. Before I came to the US, I got a mortgage and rented my apartment out as I am not living there for a while. Its monthly rent completely covers the monthly mortgage payment. When I go back, I have an apartment to live in or I can continue renting it out until all my mortgage is finished to be paid. This way, I can have an apartment in 20 years without spending my own money.
Another advantage for me is housing price rises when the mortgage payment remains constant. Once it becomes completely mine, I can sell the apartment with a higher value. Compared to 20 years ago in Mongolia, now the average apartment price is increased by over 30 times (3 million tugrug to 100 million tugrug). In addition to economic growth, inflation and time value of money are the key factors of this significant growth. As the mortgage monthly payment stays fixed in the next 20 years of time, it is a great investment to me.
My case is more for the international students. But even for the domestic students, it is a good idea to buy a house when they are students. If a student is planning to stay in the same area while in college, buying a house might be a good choice rather renting one or living in a dorm. Especially, when the monthly mortgage payment is lower or equal to the average rent rate in the area, this is not an extra cost at all. Plus, having a mortgage helps students to build their credit score and might have some tax benefits. Also, it is possible to borrow against the equity of the house in case of emergencies or to help with college expenses.
Of course, mortgage companies have strict requirements for the people they lend money to. But it is not impossible for students. Especially, for the graduate students, there might be a higher chance to have a mortgage loan. For undergraduate students, their parent or significant other might be able to co-sign the mortgage contract. There are some government programs which can help students to have the mortgage such HUD and FHA programs. I got my mortgage under the Mongolian government program which offers a half the market interest rate and no down payment condition. My mother co-signed the mortgage contract with me.
Moreover, having a mortgage could bring a number of advantages to students for their personal finance planning. First, it is a good financial education. I did a lot research before applying for a mortgage and it was basically a free finance and market training for me. Second, mortgage is a mandatory saving! If I go back home and live in my apartment, I have to pay the mortgage payment from my salary. This means certain portion of my income will be invested automatically. This way, I can budget my personal costs smartly in order to meet my mortgage duty.
For those reasons, I would like to encourage students to think about having a mortgage as early as possible. Use four years at school to rent out the apartment or convert the money you give to property-owners to an investment for your future.
Erdenekhuyag is a master’s student at the University of Missouri School of Journalism.