Student and Parent Guide to College Housing Investing
We just want to clarify a few things:
You don’t have to wait until after you’re done with school or until you’re “all grown up” to buy a home. You can buy a home right now and even come out of college with a few thousand extra dollars because of it. We also need to tell you that when you rent, you are just throwing money away.
Why Rent Buy Real Estate!
So what stops most people your age from buying a home? A lot of students don’t understand how it works and a lot are intimidated by unfamiliar terms like “equity”, “mortgage”, and “appreciation”.
We are here to clear up any misunderstandings.
Let us begin...
Mortgage
A loan specific to property. You get a mortgage to pay for your house. Then you pay the mortgage back by making payments every month to the mortgage company. These payments are often comparable to what you would pay for rent every month.
Appreciation
An amazing thing happens – the value of property usually goes up every year. This is called appreciation. It’s the opposite of something like a car where the value tends to go down every year.
Down Payment
The amount of money you pay for your house up front in cash. The amount is usually 5% of the total cost of the house, but students can pay as little as 3%.
Equity
Equity is the value of your house minus what you owe on the mortgage loan. For Example, you buy a house for $300,000 with a 5% down payment of $15,000 and you’ve paid down the mortgage by $21,336 over the four years you are in college. Your house appreciated in value 4% a year over those four years increasing the value to $337,459. Making you have $73,795 in equity.
Let us explain…
1. So this is the perfect little house that you found in one of the wonderful neighborhoods around the University. The house cost $300,000.
2. An agent from ERA Central Realty Group helps you buy the home and you pay a 5% down payment of $15,000. With a Kiddie Condo Loan student can pay as low as 3% down. This goes toward equity.
3. You get a mortgage (loan) for the rest of the amount after what you paid your down payment. That means you are borrowing $285,000 which you pay back in monthly installments of $1,474 including interest, which let’s say is 4.5%. $1,474 is comparable to rent in a lot of places and don’t forget that because you own the place, you can rent out rooms to friends and other students. At the end of four years (48 months) you have paid down your mortgage by $21,000 which goes into your equity.
4. Now for the best part! Because you have done nothing more than buy property and lived in it for four years, you get $73,500 in equity! This is due to appreciation─your house has appreciated 4% every year for four years. Just think of it as the market’s gift to you for being a homeowner. What’s even better is that 4% is the rate of appreciation for New Jersey in general. The rate of appreciation in college/university areas has been known to be higher than elsewhere in New Jersey, which means that you could build even more equity on your $300,000 home.
5. After graduation, ERA Central Realty Group sells your home for you at the new property value of $337,500. With that $337,500, you pay off the rest of your mortgage which is $264,000. You walk way with $49,875, **after closing costs.
6. You know how at the beginning we told you that when you rent, you are just throwing money away? Let’s go back to that. If you rent a house for the same price of $1,474 a month, you will have spent, hold your breath...$70,752 and what do you have to show for it? Nada. That’s a lot of money to spend with nothing to show for it. It’s as good as throwing it away.
Get Started
Contact ERA Central Realty Group and let one of their highly qualified agents introduce you to a lender that specializes in home loans for students. The lender will help you see how much you can qualify for (how much you can afford to borrow) and help you understand all the available financing options from FHA Kiddie Condo Loans to traditional mortgages.
Shop for your Home
Once you know how much you qualify for you can start looking at houses. An ERA Central Realty Group agent will help you find a home that fits you best in the area you desire.
Buy your Home
Once you’ve found the home you want, ERA Central Realty Group will walk you through the process of making an offer and purchasing the home.
What Now?
After the sale, ERA Central Realty Group provides you with a list of resources available to new homeowners. Once you have your diploma in hand, an ERA Central Realty Group agent will help you sell it or you can keep it as an income generating rental property.
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