Can we put our college student child on a mortgage?

Question of the week: Can we put our college student child on a mortgage?

Answer: Yes.

This question has been covered in different ways in the past. It comes up this week as Leslie and I have been involved in housing for our own college student daughter, and I remember some clients from over the years.

Colleges and universities have some of the highest cost per square foot housing in the cities and regions where they are located. For instance, last semester our daughter in New York City was sharing about a 350-400 square foot room for a cost around $2000 per month.

There are several advantages, primarily safety, secondarily comradery living 24-7 with hundreds, in some cases thousands, of other young students transitioning into adulthood. Proximity to classrooms is another benefit for a cohort who typically like to sleep late and find it desirable to go from bed to chair in the lecture hall in under 15-20 minutes.

Over the years we have had many clients contact us regarding the costs and benefits of purchasing a house or condo unit near their child’s college or university. Depending on where the school is located, the financial benefit of purchasing outweighs the cost of a dorm room semester after semester.

This is where having your college student signing on the mortgage comes into play. If your student is attending Boise State and there is a 3-bedroom home near campus for $420,000 it may make financial sense to purchase the home and rent two rooms to other students. However, this only makes sense if you are able to get an owner-occupied mortgage.

If you purchase the property as an investment property the rate with 25% down payment ($105,000) is 6.125%. If you student is 18-years of age or older, they can sign loan documents, be on title and you now have an owner-occupied mortgage with a rate of 4.875% with only 10% down payment ($42,000).

Doing the math for a monthly payment for a $420,000 purchase price with 10% the estimated total monthly payment, including mortgage insurance, is about $2600 per month. Rents for similar size 3-bedroom homes is around $2200 per month, divided by three that comes to a little over $700 per month.

Looking at dorm costs for Boise State, for housing you must also purchase a food plan (experienced college parents know how much of this cost goes unused) for a total monthly payment during nine months for the school year is $1265 per month.

Disadvantages of the purchase the student housing are the costs do not stop when school is out of session, additional costs of utilities and maintenance, and of course being market risk for the future when you sell.

Advantages are your housing costs are fairly fixed, colleges typically raise costs every year, responsibility your student gains for being a homeowner and landlord, possibly appreciating asset, possibly retaining property after your student graduates to either continue to occupy if staying in the area, or as off-campus rental option for future students.

Your student also gains by having a mortgage on credit report, which creates stronger current and more importantly future credit ratings, and as mentioned “growing up” and being responsible.

We have had many clients over the years purchase student housing for their students after paying dorm costs for several semesters. I have yet to have negative feedback from these parents for post-graduation issues or regrets for having purchased a home with their student on the loan instead of renting from the college or university.

If this is an option you wish to discuss please do not hesitate to contact me.

Have a question? Ask me!

Surprise! This morning those who make estimates on Wall Street for economic data were very surprised, even shocked, at the Labor Department’s report on job creation in July. While the consensus on Wall Street was 258,000 new jobs were created in the month, the report showed 528,000 new jobs. If your estimate is off my more than double you tend to be a bit surprised or a lot shocked.

Industries across the spectrum gained jobs, led by Education and Health (+122,000), Leisure and Hospitality (+96,000) and Professional and Business (+89,000). The total number of workers employed equals the number earning paychecks in February 2020, the month before the pandemic. Companies are still having trouble finding workers, and the demand supply imbalance pushed wages up 0.5% in July and up 5.2% from last July.

The dark cloud around the silver lining is that more people have dropped out of the labor market. While there are as many employed as there was pre-pandemic, millions more are eligible for work due to coming of working age. As a result, the labor participation rate dropped to 62.1%, the lowest since late 2021. The increase in new jobs is interesting juxtaposed initial jobless claims filed, 260,000 last week continuing a weekly increase since March.

Investors are very skittish with conflicting data showing a shrinking economy on one hand and increased employment on the other. In between sits inflation which continues to grow at a greater rate than wages, creating uncertainty about consumer spending and expectations.

Rates for Friday August 5, 2022:  The Federal Reserve has been consistent in their stance that they are focused on labor markets when deciding their strategy regarding their benchmark interest rate. The very hot new jobs data puts another very large, 0.75%? 1.00%?, rate increase in play when they next meet. Investors reacted to this by wiping out last week’s rate decline, ending a three consecutive weeks of declining rates.

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS LOCKED FOR 45 DAYS FOR PURCHASE TRANSACTIONS:

30-year conforming                              4.875%        Up 0.25%

30-year high-balance conforming        5.625%         Up 0.25%

Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. Rates are based on 20% down with 740 FICO score for purchase mortgages.

Our personal quest for student housing is taking place in New York City, more specifically Brooklyn, where we have been trying to herd potential roommates to get applications into an agent for an apartment.

Were I the winner of last week’s $1.3 billion lottery jackpot we would skip the rental and buy a building for our young student and friends.

Speaking of lotteries, interesting human behavior is when people won’t buy tickets until the jackpot exceeds $100 million, $500 million, $1 billion. Winning a measly $12 or $32 million is not worth the cost? My brother has always said that lotteries are a tax on those who are bad at math.

Have a great week,

Dennis

Past Weekly Rate & Market Updates can be found on my blog page at my website www.DennisCSmith.com/my-blog