SECOND HOME FOR COLLEGE STUDENTS

They grow up so fast. It seems like just yesterday they were learning how to crawl, and now your child is packing up for college. With all the overwhelming emotions you must be feeling, there’s no doubt you’re also feeling the sticker shock of paying for their education. From tuition and books to parking passes and meal plans, college is a pricey investment.

There are some costs that are just unavoidable, but there is one area of spending that could create long-term wealth for both you and your student. Have you considered buying a second home for your college student?

Before you panic at the thought of a second mortgage, let’s look at the long-term benefits of a second home, rather than paying for university housing.

Investment Strategy

When it comes to planning for your future (and your child’s) it never hurts to have a backup plan. By investing in a different market of real estate, outside of your primary residence, you have the potential to increase your investments. Owning a second home also opens up the options for your living situation after retirement.

Owning, rather than renting, a home will also allow the home to build equity. MyCollegeGuide recently said students at public universities can expect to pay an average of $8,887 each year for room and board, and those at private universities are likely to pay closer to $10,089 per year. Why not put this money toward a home that has the potential to keep making money, long after your student moves out?

Tax Benefits

As long as you use the property as a second home, and do not rent it out, you can deduct mortgage interest the same way you do on your primary residence. As a homeowner, you can deduct up to 100% of the interest you pay up to $750,000 of the total debt that is secured by both the primary home and the second home. (Note: $750,000 is the total debt between the two houses, not $750,000 each.)

When deciding on whether or not to rent out your property to another individual for the time you’re not using it, speak with a financial advisorCertain tax breaks will or will not apply, based on your specific situation.

Appreciation

College towns are perfect for property appreciation. Because new students will always be moving through, homes in the area will always be in high demand. Even after your college-aged kid moves out, you could consider renting it out to other students. Or, if you have multiple kids going to the same school, rent the property out during the years it’s being unused. (If you do this, be aware of how it will affect your taxes.)

Stability

Avoid the stress of finding a new living space each year by owning a home your child can live in for all four years of college. No move-in dates, security deposits, or storage fees.

Additional Tips

If you’re considering purchasing a second home, rather than paying sky-high prices for university housing, consider these additional tips: 

Remember all the expenses. Taking care of a home is an expensive task. From lawn care to appliance upkeep, you’ll need to factor in all of the costs of buying the home, besides just the mortgage.

Look in advance. Even if your kids are a few years away from picking a college, consider the benefits of different markets. Buying a home in one state versus another might be a deal-breaker. You’ll also need to be in good financial standing when you apply for a home loan. (Know your loan options.)

Understand scholarship requirements. If your child is awarded a scholarship through the university, living on-campus might be a requirement. Consider all the possibilities with your child in advance and stay on top of potential requirements. (Some universities will require freshman to also live on campus, no matter what.)

Help your child establish credit. If you decide to have your soon-to-be-student listed on the mortgage and deed, they will need to have some established credit before applying. Consider applying for a low-limit credit card in the student’s name or have a small car loan in their name to help with their credit rating.

Do you have more questions? Give our team of loan experts a call. 520-495-0222

Unmarried Home Purchase: What You Need To Know

It’s common for unmarried couples to want to buy a home. Married or not, it is possible. Buying a home is one of the most significant financial decisions of your life, so it’s important to understand the details of buying a house as a couple.

Here are four things you should plan for when buying a home as an unmarried couple:

Thoroughly Discuss Your Finances

It’s very beneficial for couples to discuss each other’s financial situations in detail. Before meeting with a lender or realtor, it’s imperative that you review each other’s credit score, income, debts, and financial history. Most differences between your finances can be accommodated, so it’s important to know the details of each other’s finances in case any surprises arise. This step will prevent any conflict during or after the mortgage process.

Determine Your Costs and How to Split Them

It’s essential to have a system in place to split bills and other expenses. This is even more critical when buying a home. First, figure out how to divide the down payment and closing costs when purchasing the home. Then, discuss and decide how to handle the monthly mortgage payments, utilities, and other costs associated with owning a home (emergency repairs, maintenance, taxes, etc.).

You may want to work this out together with a real estate attorney and get the details in writing to keep things on record. If you don’t already have a joint bank account, it may be a good idea to at least create one for funding the home while keeping your other funds separate.

Understand Your Ownership Options

You may not have known that there are options for the purchase of your home. Deciding on which ownership option suits you may be one of the most important decisions in the process. Your home’s title can be configured in a few different ways, depending on which state you live in:

Joint Tenancy: You both equally own the property. Common between husbands and wives, joint tenancy allows one of you to inherit the property if something should happen to the other.

Tenancy in Common: You both own a specific percentage of the property. For example, you may own 40% of the property while your significant other owns the other 60%. If something happens to one of you, the ownership will transfer to whoever is denoted in a living will or trust. If there is no will or trust, ownership goes to the next of kin and not your significant other.

Sole Ownership: Some couples may find that it’s better just one of you to have full ownership of the home. If you have better credit than your significant other or are in a better place financially, this may work for you.

Create a Backup Plan

Sometimes things don’t work out as planned and, legally speaking, there are no protections in place for unmarried couples who co-own a home. We recommend creating a partnership agreement. Similar to a prenuptial agreement this will detail what happens to the home if you two split up. Written contracts are the best way to plan so we recommend you take any chance you get to draw up your agreements in writing.

Do you have questions or would you like to sit down for a complimentary no-obligation consultation? We are your Home Loan Experts, at your services. Give us a call 520-495-0222.