We spoke with Real Estate Agent Kirk McCullen (314-951-1968; kirkmstl @ gmail.com) and Lender Drew Stiegimeier (618-779-7507; drews @ frontierstl.com) about what you need to buy a home while a graduate student. Most of the audio was recorded, and Kirk gave us a couple documents. Our notes of the event are below.
Pros of buying a house:
- Control – want to paint a room? Go for it. Want to replace that old washing machine. Do it.
- Tax benefits – Some payments and costs can be deducted from taxes, such as mortgage loan interest and some closing costs
- Stability – never have to worry about someone raising the rent, selling the building, etc
- It’s an investment – You now own something! You’re building equity!
- Fixed cost – You know how much you are going to pay each month (your mortgage payment is set)
How long to live in a house?
- Standard is 5 years, but currently it’s looking a bit shorter than that
- How do you know when you’ve made enough equity to sell?
- Have you made improvements to the house?
- Talk to a lender/real estate agent and get appraisal
- What are your neighbors’ houses selling for? (You can find this on Zillow)
- As a seller you have to pay closing costs and commission, so take that into account
How to choose an agent?
Your agent should be available at all time and have a good relationship with lender. Watch out for additional fees.
A buyer’s only agent is best because they get the commission from the seller (buyer doesn’t have to pay them) and therefore they only work for you. They have no tie to the seller or seller’s agent.
How do I afford a down payment?
The Missouri Housing Development Commission has programs for helping with down payments. There are benefits to getting help with the down payment versus putting your own money down (having to pay it back versus spending it upfront). You’ll have to find what is best for you.
What can I expect for a down payment?
- Typically 3-20% of purchase price
- FHA is 3.5%, VA&USDA loans 0%
- Earnest Money (1% of sales price) is applied toward down payment.
With less than 20% as down payment, interest rates don’t change much. If you put down more, rates go down.
Closing costs tend to be $5-10K, but it depends: includes payment to buyer’s agency, loan origination fee, title charges, appraisal, and 1yr home insurance, etc. (Note: I recommend you do your own inspection even if the buyer has already done one.)
Condo vs house?
There are pros and cons to both.
- A condo will have homeowner/condo’s association dues that come with owning it. These associations will have requirements that have to be met, and may have restrictions as well (e.g. dog breed restrictions).
- On the other hand, these associations can make some things really easy, like contracting for snow removal.
- Buying a house means you have full control of your property (assuming no homeowner’s association).
As international students, what are the restrictions/considerations?
- For F-1 visa holders and OPT holders right now, there are limited options for loans especially during COVID-19 times. Most of the lenders want to see people having applied for H1Bs or other types of visas. A current student has a loan from Stiffel Bank and Trust.
What do you think the best investment property is if you plan to rent and live out of state?
- Buying a bigger home that you could rent a part of (like a two-family home) is a better investment if you would like to live out of state.
How much do you need on hand for repairs each year?
- Recommended to have 1% of purchase price
Is it better to purchase or rent if you will be around for 3-4 years?
- Purchasing is a better investment even if you just break even at the end. If you will be around for 3-4 years, it is probably a good idea to buy a multi-unit house.
How do you determine the neighborhood to buy property in?
- Safety is not a neighborhood-specific concern but more of a city concern. The differences that should be considered are the available resources in the neighborhood, like schools, restaurants, etc.
Cost and budgeting, how should you determine the price range of a house?
- A good rule to abide by is 3x your yearly income, which should put you in a good spot to make the payments.
How to get a loan?
- Ask your program coordinator for a letter saying that our stipend is guaranteed for 3 years and they should provide it to you.
What about a 15- vs 30-year loan?
- With a 15-year loan you’re going to pay a lot less interest, but you could take a 30-year and pay more – there is not penalty for early repayment.