Buying Property as a Grad Student

Put on your rose-colored glasses and pretend you’re privileged for a minute: you have relatively little or no student debt. You have some savings. And you’ve just been accepted to graduate school. Life is good. Now, where will you live for the next 5-8 years of your life? In my case, I bought a condo. How outrageous!

Mine was a unique position to be in because most people who think about purchasing a property have a secure job. They aren’t full-time students. So, why even consider a property? Aside from the actual schooling portion of grad school, you have a guaranteed income for 4-9 years (depending on your university) in the form of a stipend. If your stipend is considered a “livable wage,” investing some of your money is not a bad idea. I am notoriously risk averse, so investing in stocks or crypto was less appealing than finding a long-term, low-risk investment. Buying a property was more palatable for me. The moment I got notice that my acceptance to graduate school came with a guaranteed 5-year funding package, I began planning to find a realtor and to get approved for a mortgage.

The Mortgage 

Lenders are fickle. I started shopping around for a mortgage through major banks—none that I’ll mention here, but we all know and love them (ahem). One major bank simply stated that a student stipend wasn’t income, so they wouldn’t qualify me for a mortgage. Another major bank said that I would qualify for a mortgage as long as I took their “first-time homebuyer’s course.” Well, that was three Saturdays wasted because after going through their course, getting pre-qualified for a loan, and signing the initial documents for the loan, the underwriter didn’t approve the application. Total waste of time. I finally wised up to the fact that big banks really weren’t going to help in my situation, so I turned to a local credit union that was affiliated with my university. During my first meeting with the loan officer, he made it clear that they were very familiar with student and faculty finances, and that the credit union would be able to approve my loan fairly quickly. One benefit of starting the process as soon as I had been accepted to graduate school was that the credit union needed a letter from my employer (i.e. my graduate program and the dean’s office) proving that I would have at least 5 years of income. Since my funding package was guaranteed for 5 years, it worked out perfectly. If I had waited just six months, the credit union wouldn’t have been able to use the letters from my department as part of their 5-year minimum income guarantee to approve my loan.

The Finances

Before being accepted to a PhD program, I spent two years in a subsidized apartment on the South Side of Chicago while I completed my MA. It was a 650 square foot space that rented for $1,300 a month (utilities included).

The mortgage I could realistically afford on my income was slightly higher than what I was paying already. Since a property would have added monthly costs, the mortgage itself had to be below $1,000. That way, I could afford to pay any homeowner’s association fees, insurance, utilities, and taxes.

After searching for months, the condo I settled on was just within the “doable” price range. Here’s the breakdown:

Condo Sale Price: $200,000
Mortgage: $160,000
Down Payment: $40,000
Loan Length: 30 years
Interest Rate: 3%

As I mentioned before, the monthly mortgage payment needed to be lower than what I was paying per month for my apartment in order to be able to afford all of the other costs that come with homeownership. With all of the costs accounted for, I was going to pay around $2,100 a month:

Monthly Mortgage: $900 (property taxes were rolled into the mortgage, raising the monthly “mortgage” payment to $1,400; yes, property taxes are very expensive)
Monthly Insurance: $100
Monthly HOA: $275
Monthly Utilities: $400

After seven years (the time it took me to finish my PhD) in the condo with monthly payments of about $2,100, the total cost amounted to $176,400.  If I had stayed in my apartment for that same period, assuming there was no increase to the rent, I would have paid a total of $109,200.

The Responsibility 

Nothing makes you feel like an adult as much as YouTubing how to change a garbage disposal. Every little joy and pain that is associated with a property falls on you as the owner. Once you decide that buying is financially feasible, you should consider one more thing: do you want to have the responsibility of maintaining a property?  I’ll be honest. It’s not easy. It takes time and money. And sometimes, you’ll yearn for the days of calling up a landlord to fix something that needs mending.

The Long-Term Benefit

No matter how much money you put into a property, you’ll make it back over the long haul. Over the course of your grad program, you build equity (i.e. the increased value of your home compared to the debt you owe on it) and you can use it to bring in supplemental income (renting out a room or the whole place once you’re done with school).  If you need to move away after your program, you can sell the property or rent it out. I owned my condo for the 7 years that I was a doctoral student, and then I sold it when my spouse and I moved.

The Upshot

This isn’t exactly an “if I can do it, so can you” instance. Buying a property worked for me because my circumstances allowed for it. I had paid off all of my debt during my MA program, and with the funding package and job I already had on campus, it was feasible for me to take on a mortgage. The purpose of buying a property was to do something with my income that would benefit me in the long term. Had I been more daring, I would have invested in something riskier. And if I had been more conservative, I would have placed all of my income into a high-yield savings account. As it stands, property turned out to be a happy avenue for me because it was relatively safe and protected/grew my income.

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