COLUMBIA, Mo. — As freshmen at the University of Alabama settle into dorm life, a new study shows it may be more affordable to buy a home in Tuscaloosa and owning it for as little as three years instead of the dorms or renting off campus.
However, across the state at Auburn University, the adverse is true.
The analysis from Mortgage Research Network finds that at nearly one in five U.S. colleges, buying a home and may be the more affordable option.
Of 121 colleges analyzed nationwide, 23 are in towns where homeownership costs less than dorms or off-campus rentals over a three-year period. Buying outweighs renting or dorm life in 26 towns for those comfortable holding the home as a rental property for 10 years.
To determine where buying is cheaper, Mortgage Research Network compared the typical three-year cost of college room and board to the cost of buying and owning a house or condo near campus.
“Buying a house for your college student won’t work everywhere, but in the right market, it can be a smart financial decision with real returns, especially for families thinking about longer-term ownership,” said Tim Lucas, the report’s author and lead analyst at Mortgage Research Network.
The biggest potential savings were found at Temple University (Philadelphia), Marshall University (Huntington, W.Va.), University of Delaware (Newark, Del.) and the University of Alabama, where parents could save $16,000 to nearly $30,000 over three years by owning instead of paying for dorms.
In Tuscaloosa, according to the study, the average home price is $227,250 and three years of room and board is $44,520 for a three-year savings of $16,353 and 10-year savings of $32,598.
Auburn was 31st in the study which showed the average home price is $405,418 and three years of room and board is $46,188. It would mean a three-year loss of $3,678 and a 10-year loss of $11,375.
The calculation included mortgage payments, property taxes, insurance and food. The analysis assumed a 10% down payment, modest home appreciation and used room and board as a proxy for off-campus rent, which tends to be similar in most markets. It also factored in two roommates during the student’s stay, covering two-thirds of the median market rent.
The markets to purchase a home were found in cities with low home prices, low property taxes and high rents compared to mortgage payments. Of the 23 schools, the average home price was $255,000 with a $226 average monthly tax bill and $1,648 in average rent.
Lucas offered these tips when considering buying in a college town:
- Focus on schools where room and board costs are high, but home prices are relatively low.
- Watch out for high property taxes and insurance rates.
- Research local appreciation trends and avoid areas where values are stagnant or declining.
“Perhaps most importantly, make your child the primary borrower on the mortgage, with a parent listed as a non-occupant co-borrower,” he said. “This structure allows families to qualify for favorable owner-occupied mortgage rates, even if the parent is supplying most of the income or down payment.
“Buying the home as an investment property, by contrast, typically results in higher interest rates and stricter loan requirements.”
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