buying a condo using students loans?

[Bianca01]

Is it possible to buy a condo using some of your student loans? Is anyone else thinking about buying a condo? If so, how are you doing it?
Thanks,
-B

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[JonnyG]

I did it, well sort of. I worked for three years and settled on my place the month before I quit my job. That way the bank used my salary at my job. You can do a no doc loan, which cost alittle more, but they don't look at your salary. My mortgage is cheaper than most peoples rent and I could get a roomate if I felt like it (2 bed/2 bath). I use my student loans to pay the mortgage, so in theory I actually get some use from the money.

 

[SoCuteMD]

My parents cosigned. I wanted to do what JonnyG did, but my job was in a different state, so the bank wouldn't accept my income from the other state as income for the property (as a primary residence, I could have done it as a vacation home, but that just jacks up the interest rate. So they cosigned and the bank was thrilled, I was thrilled because they lent me the down (they will get half of the profit when we sell) which cut my monthly payment by a LOT (you get a lower interest rate if you put more down, plus obviously the loan was for less!). My payments come out to about what you would pay in rent, but as interest rates rise, so will rents and my mortgage will stay the same. I was actually able to get a good 30 yr fixed, so if the market tanks before I graduate I can just hold on to the place and rent it. Or if I decide to stay put for residency (a very real possibility) I won't have to refinance!

 

[pagemmapants]

I would imagine it depends on a) the cost of living, b) the amount of liquid assets you have saved up and c) whether or not you have access to a guarantor.

I know that I personally have a pretty decent line of credit going, even though I made only about $1200 last year, and by the time I get to July I'll have $10k+ saved up in a Roth IRA (which, conveniently, can be withdrawn without penalty to pay for a "first house"). This is enough (according to other testimony) to get a decent (not fancy, but decent) townhome in Houston and end up with a manageable monthly payment that will be comparable to or even cheaper than avg rent in that area. Plus, if I DO go there and take this route, that'll mean in-state tuition for the last 3 years and probably save me much more money than I'd lose on paying the interest. Sweet deal, if you ask me. However, in New Haven there's no way I could afford more than the typical student apartment rent.

However, I am under the impression that, given my situation and the fact that I will not be making a steady income, I will be required to have my parents sign on as guarantors (much like they have done for my two prior apartments). It makes the mortgage dealers more comfortable but, if you're a responsible person, doesn't cost your parents a dime.

 

[pagemmapants]

AND if you find the right place you could even rent out your extra room to pay for a chunk of the mortgage!

Smartest financial move EVER.

 

[Bianca01]

What kind of student loans would you use to pay for a condo? It seems that the stafford loans are directly tied to the amount of tuition at the school. Are there other student loans available for students to apply towards housing costs? This is a dumb question, but are the FAFSA forms for stafford loans?
I realize I probably sound really stupid. I have never done this before.
-B

 

[GoodEats]

So what're the downsides to getting a condo then? I mean, why doesn't everybody do it if it's such a fantastic move?

 

[SoCuteMD]

You can get money to cover your entire budget (which includes living expenses - they know we can't work!). A lot of the money comes from private loans if your school's tuition is high.

Downsides: you (or your parents) must have good credit. You must be willing to spend time fixing things/spend money hiring people to do so. You may have to find a roommate and be the landlord and roommate all in one, which can be difficult. The market may tank and you may be stuck with a place after you graduate. You can't move if the neighbors suck (and sometimes, they do).

seillene: be careful. It is my understanding that there are different rules applied if the Roth has been established for fewer than five years: http://www.fairmark.com/rothira/first.htm. That link clarifies some of it. It looks like you have to pay taxes if the Roth is less than 5 years old. I personally chose to go in with my parents (they lent me the down) instead of raiding my retirement savings. Any withdrawals from an IRA will show as "income" (taxed or not) on your FAFSA and thus will count against you when you complete it for the tax year in which you withdrew. So even if you didn't work you might get hit with some ridiculous expected contribution. I would find a high-yield savings account for any current money (I personally endorse INGdirect) if I were you. That way you won't have to put the money into your Roth, withdraw it, and then count it as income a second time around.

 

[desertdr]

You can get money to cover your entire budget (which includes living expenses - they know we can't work!). A lot of the money comes from private loans if your school's tuition is high.

Downsides: you (or your parents) must have good credit. You must be willing to spend time fixing things/spend money hiring people to do so. You may have to find a roommate and be the landlord and roommate all in one, which can be difficult. The market may tank and you may be stuck with a place after you graduate. You can't move if the neighbors suck (and sometimes, they do).

seillene: be careful. It is my understanding that there are different rules applied if the Roth has been established for fewer than five years: http://www.fairmark.com/rothira/first.htm. That link clarifies some of it. It looks like you have to pay taxes if the Roth is less than 5 years old. I personally chose to go in with my parents (they lent me the down) instead of raiding my retirement savings. Any withdrawals from an IRA will show as "income" (taxed or not) on your FAFSA and thus will count against you when you complete it for the tax year in which you withdrew. So even if you didn't work you might get hit with some ridiculous expected contribution. I would find a high-yield savings account for any current money (I personally endorse INGdirect) if I were you. That way you won't have to put the money into your Roth, withdraw it, and then count it as income a second time around.

Just to clarify guys about withdrawing from your ROTH IRA:
1. Any amount that you contribute into a ROTH IRA is TAX FREE when you withdraw!!!!
2. The taxable portion of the ROTH IRA is the INTEREST that you earn on your contributions!!!

For example:

You contribute $10,000 into your ROTH in 2002-2005 while working before med school. You decide you need that money for something, maybe a downpayment. You check your ROTH account and notice that there is $12500 in the account. You can withdraw $10,000 tax free. If you withdraw $12,500, you pay taxes on $2500. DISCLAIMER: Yes, there is an exception to withdrawing from ROTH to use the money for a 1st home.....in essence, you can withdraw the ENTIRE $12500 tax free if buying a first home...(don't know exact specs but that's the gist of it!)

 

[snobored18]

So what're the downsides to getting a condo then? I mean, why doesn't everybody do it if it's such a fantastic move?

Easy no one to co-sign (seriously most of us don't have any income as traditionals) or lack of money to put a down payment that will make the mortage payment comparable to rent (again as students who has arou 10-30k to lay down). I honestly think getting a condo or a townhouse especially is a great move if you live in a place with low living costs because if you have something with multiple bedrooms/bathrooms you can rent those out dirt cheap to your friends and defray a lot of costs...and if you are in a condo paying HOA dues that covers insurance and some buidling maintenance so its not like you are a land lord to your buds...but I think it really comes down to the fact most people lack the funding to get this started and also it is rare to find condos that are within walking distance so I know a lot of people choose to rent out of convenience.

 

[GoodEats]

Ah, thanks!

 

[thegenius]

You can buy your own condo/loft/home, but there are several things you need to consider outside of just getting the money needed for the downpayment. First, consider whether buying real estate in the city you are moving to is a sound investment for 4 years. Right now housing appreciation is DECREASING in almost every part of the country. Second, the cost of ownership always exceeds your PITI payments (principal, interest, taxes, insurance). Sometimes its a little, sometimes its a lot. Third, four years is just on the brink of how long it takes for you to make money on a house. There is a great java-based calculator that compares rents vs. mortgages, let me see if I can find it...

http://www.firsthomebuyers.net/java/MortgageRentvsBuy.html

Really try to use realistic numbers. For instance don't assume 10% appreciation every year, it will be more like 3-5% appreciation (and decreasing).

I would only try to buy a place in the hottest of real estate markets. That means in general terms that I would buy on the coasts and properties that are in great locations. Like San Francisco/Bay Area, NYC, Arizona, Florida, maybe Pacific Northwest.

 

[DrBowtie]

So what're the downsides to getting a condo then? I mean, why doesn't everybody do it if it's such a fantastic move?

There can be quite a bit of maintenance costs as well. I.E. plumbers, electricians, appliances.

 

[SoCuteMD]

Just to clarify guys about withdrawing from your ROTH IRA:
1. Any amount that you contribute into a ROTH IRA is TAX FREE when you withdraw!!!!
2. The taxable portion of the ROTH IRA is the INTEREST that you earn on your contributions!!!

For example:

You contribute $10,000 into your ROTH in 2002-2005 while working before med school. You decide you need that money for something, maybe a downpayment. You check your ROTH account and notice that there is $12500 in the account. You can withdraw $10,000 tax free. If you withdraw $12,500, you pay taxes on $2500. DISCLAIMER: Yes, there is an exception to withdrawing from ROTH to use the money for a 1st home.....in essence, you can withdraw the ENTIRE $12500 tax free if buying a first home...(don't know exact specs but that's the gist of it!)

WRONG! Yes, you can withdraw contributions. Earnings, however, are subject to different rules. You can only withdraw without tax and without penalties if the Roth has been established for 5 years, which is incredibly UNlikely if you are a traditional student!!! Check the link I posted earlier.

...and if you are in a condo paying HOA dues that covers insurance and some buidling maintenance so its not like you are a land lord to your buds...

Who collects the rent? Who pays the mortgage and is screwed if someone doesn't get their rent in on time? Condo fees rarely cover maintenance on anything inside the walls or inside the apartment, so you really are on your own when it comes to that stuff (even electrical). Most condos cover insurance for the sidewalks, a playground, a pool, but you will have to have your own homeowner's to cover (again) what is inside the walls.

Example of how difficult homeownership can be:
I arrive home at 10 pm one night after study all day. I plan to cook dinner, study, watch TV, catch some Z's. I discover that my stove isn't working. I deal with it, microwave dinner. At some point, however, I know that I will have to arrange for repair and spend an entire day (9-5) waiting for the Sears guy to show. If he doesn't show, I wait the next day too. If I were renting I would call my landlord, say fix it, and go to school that day.

 

[thegenius]

Easy no one to co-sign (seriously most of us don't have any income as traditionals) or lack of money to put a down payment that will make the mortage payment comparable to rent (again as students who has arou 10-30k to lay down). I honestly think getting a condo or a townhouse especially is a great move if you live in a place with low living costs because if you have something with multiple bedrooms/bathrooms you can rent those out dirt cheap to your friends and defray a lot of costs...and if you are in a condo paying HOA dues that covers insurance and some buidling maintenance so its not like you are a land lord to your buds...but I think it really comes down to the fact most people lack the funding to get this started and also it is rare to find condos that are within walking distance so I know a lot of people choose to rent out of convenience.

It's not clear that owning a house/condo will always lead you with a profit after 4 years. One has to crunch some econometric models in that geographical area to determine this.

In addition, there is a higher probability of profit on moderately expensive properties than on dirt cheap properties. You make the majority of your gain on leverage, not on principal savings.

 

[pagemmapants]

So socute, let me just clarify -
I haven't had my Roth for 5+ years - I think I've had it for about 3 (early start, I know). My contributions at that point (early July) would be 10k almost exactly. My earnings would constitute <$200.

So you're saying I can take out up to $10k of my contributions tax-free under the first-time homebuyer qualification, so long as I don't touch my earnings, or is it that I just can't take anything out tax-free until 5 years has passed?

 

[SoCuteMD]

I honestly don't know. I've had a Roth since age 20 (early start as well) but I chose not to touch it for school. The website I posted has lots of information. I would use that as a reference, and maybe talk to your parents accountant (if they have one). THe way I read it (and I am financially savvy, but I am in no way an expert) is that you can touch contributions (as long as they are not rolled over or something) any time without penalty. Earnings are subject to a different set of rules. The other thing is whether the distribution from the Roth will show as "income" on your taxes and FAFSA, as that will affect your aid package for the following year.

 

[pagemmapants]

I think that's the way I read it too. . . but I've already filled out my FAFSA for this year, so no worries on that! Bwa ha ha.

I guess I'll worry about it if I end up going to Baylor. Anywhere else and it's a moot point cuz I couldn't afford it anyway. Thanks!

 

[tigress]

You can get money to cover your entire budget (which includes living expenses - they know we can't work!). A lot of the money comes from private loans if your school's tuition is high.

I've always wondered when I see people saying this. My husband's tuition is $37k+ and rising, and that doesn't include fees or any of that. He's been able to rely completely on federal loans so far, including for cost of living. Obviously most of that is unsubsidized. But that's your basic tuition for a private school, right? So it seems like most people ought to be able to do this, unless their cost of living is much higher (like ours will be once we have our first child). Oh yeah, and my husband actually turned in his FAFSA late one year and just before the deadline the other year (because his mother always files for multiple tax extensions and wouldn't give him estimates); this is actually more in response to the FAFSA thread, but I realized it the other day when worrying about how I don't have my W2 from work yet. Obviously it's best to get in the FAFSA as early as possible, but it is likely to work out if you don't.

Okay, enough of that tangent; we're considering buying a condo if I decide to attend med school where we currently live. My parents will co-sign. We actually have saved for a down payment, but my parents want to help with that as well so we can keep money in the bank and repay them later when we are actually making money. We are lucky that my parents are in a position to help at all.

Buying makes sense for us, because if I go to med school here we'll be here for at least 5 years (through my husband's residency) and potentially longer than that. Real estate prices in this area are actually still increasing, so it wouldn't be a financial risk to buy. But we are considering some of the negative aspects that other people mentioned, like upkeep. Our other option would be to rent a duplex or a house converted into apartments, which they have around here, or move to an apartment complex where they allow washer/dryer.

Anyway, in the end it probably depends completely on your personal situation and where you plan on living. I remember there was a great thread about buying vs. renting, either here or in allo, a while back. Some people with a lot of knowledge on the issue chimed in there.

 

[Bianca01]

I plan on attending a school that provides no on-campus housing. I really dislike the thought of renting for four years. Do you think the financial advisors at my med school would be able to help me find student loans to cover this? I am not very knowledgeable in this field.
-B

 

[45408]

AND if you find the right place you could even rent out your extra room to pay for a chunk of the mortgage!

Smartest financial move EVER.

Taking out a loan to pay another loan = smartest move ever? Try a "no" for that one. Some people might make it work okay, but you're paying interest twice - and that's if you can convince the bank to loan somebody a lot of money - somebody with no actual income.