What College and University Students Need to Know Before Buying a Home While in School
Between Okanagan College campuses (Vernon, Kelowna and Penticton), the UBC Kelowna campus, and number of other post-secondary programs in our neck the BC Southern Interior, the Okanagan Valley is known as a “college town” as much as it is a “resort community”. Not only are there tremendous Undergraduate, Masters, and PhD opportunities in the region, students choose to receive their education here because they plan to stay after getting their degree. Knowing this, savvy students want to get a head-start on post-education life by getting a mortgage while in school. Is a mortgage for a university student a good idea? Should college students add that to their plate on top of a full course load? It can absolutely be a great way to get ahead in life! However, like with anything, careful considerations must be made before getting pre-approved. Enroll in our Mortgage for University Student 101 class by reading below.
Don’t Listen to Your Parents
Your parents have been there for you since the beginning. They have been a resource of helpful advice and support, and paved the way to a successful university experience thus far. It only makes sense to lean on them for guidance in buying a home too, right? Not necessarily. Unless they’ve made a recent real estate investment (i.e. bought a second home, etc.) a lot will have changed since they last secured a mortgage. There are new mortgage programs that have been instituted at Federal, Provincial, Commercial, and Private sector levels, and within these programs is a fit best suited to YOU, not your folks.
While parents can certainly be helpful when it comes to choosing a type of property and checking to see if a home has “good bones” before committing to escrow, it’s best to leave the intel regarding mortgage rates, terms, and programs to a pro. Now before you show this to them (we don’t want them mad at us!) there is one caveat to the equation. Keep reading.
When Parents Can be an Important Resource
As alluded to above, your parents (as applicable) should not be your primary resource of information and final decision making regarding mortgage rates, terms, and programs. However, there is an exception for some – when you plan on buying a home with them. Given that their credit/equity and ability to assist with a down-payment and monthly payments alleviates a big burden, you may indeed consider this option. For more insight, please reference our guide to getting a mortgage with your parents.
Getting Help With the Down-payment
What if you aren’t able to (or don’t want to) depend on parents for help with a down-payment?
As of 2020, the Canada Mortgage and Housing Corporation disallowed new buyers from using borrowed funds (i.e. a student loan) for any portion of a down-payment if mortgage default insurance was needed A person typically requires mortgage default insurance when buying a home with less than 20% of the home’s value as a down-payment. As a college student, you probably fall in this category. However, even if you are able to secure 20% and use a portion of your student line of credit for part of your down-payment, doing so is a slippery slope. Do you really want to start life with excessive debt?
When you work with a mortgage broker, you can mitigate the need to tap into your student line of credit while also reducing the required down-payment and monthly payments to come. How is this possible?
A mortgage broker will connect you to a variety of programs that apply to your situation, be they rebates, tax benefits, and other ways to fund your down-payment. These programs include Canada’s First-Time Home Buyer Incentive program among others being marketed (or not) by Canada’s Big Banks along with private lenders. Ultimately, you may only need to get together 5% to enter the market! Simply call our BC Southern Interior mortgage brokerage at 250.493.9111 to chat about eligibility for programs.
Getting Help With Monthly Payments
Some banks and traditional lenders shy away from student buyers. They don’t realize that you are a wise investment. After all, you’re on the verge of a degree and are ready tackle the world with a head start as a homeowner. If anything you should be applauded for your forward thinking. This lack of foresight is made evident in the lack of marketing of favorable mortgage rates (variable and fixed) for university students. Subsequently, initial mortgage calculations may leave you disheartened and unaware that there may be ways to get help with monthly payments via lower rates.
Fret not, because there are actually lenders out there that want to work with you! That said, you will not be able to access most of them on your own. Professional mortgage brokers however, have established relationships with these lenders and can get you access to these lower unadvertised mortgage rates and programs that offer favorable terms to college and university students. Call 250.493.9111 to learn more.
Solving the Income Equation
When qualifying for mortgage programs for university students, you will be required to properly represent your income to lenders and other decision makers. For many hardworking students, doing so isn’t so clear cut. There are obvious additions, including the salary/wage that you receive from a part or full-time job, but for many who juggle certain types of gigs amidst their course load there may be more to report. Where applicable, you also want to add tips, commissions, and bonuses when there is enough consistency to consider it steady income. Also look to other income sources such as side contracting jobs (i.e. tutoring, web design, Uber/Lyft, etc.) or sales of goods online (i.e. through eBay, Etsy, etc.). Furthermore, factor in income from existing investments, trusts, or assistance with monthly payments from parents. While adding these income sources to what you present to lenders can be beneficial, there are tax implications to consider. This is is a big part of why you want to partner with a broker for guidance. If buying a home in the BC Okanagan Valley, call 250.493.9111 to solve the income equation with your mortgage broker.
Final Thesis Statement
In referencing everything above, the main point of this essay is clear. A university student who wants to get a mortgage should work with a broker to get access to valuable information along with preferred programs, rates, and terms.
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