In some college towns, buying a home is cheaper than dorm life
Trading on-campus food and housing costs for those linked to homeownership can save up to $30,000 in three years in some college towns, a new report suggests.
For many parents, paying for room and board is a big challenge when it comes to college affordability. But in some parts of the U.S., there's a surprising twist: Buying a home could be the most affordable option in the long run, according to a report published by the Mortgage Research Network last month.
On-campus housing and food spending at four-year colleges outpace tuition by thousands of dollars on average, according to the National Center for Education Statistics. Of the 121 housing markets near top colleges and universities that were analyzed for the report, buying a home was cheaper than paying for a dorm or renting off-campus in 23 areas.
Analysts reached this conclusion by comparing three years of typical college room and board options to homeownership costs — including mortgage payments, taxes, insurance, maintenance, closing costs and groceries — in the same market over 36 months, and factored in modest home appreciation and roommate income.
In some markets, purchasing a home near campus could save families up to $30,000 in three years, analysts found — and for homes that are kept as investment properties for a decade, profits could reach $70,000.
Where to find the best savings: When estimated dorm life costs were swapped for home purchase costs, Temple University in Philadelphia topped the list with $29,742 in savings possible over three years. Marshall University in Huntington, West Virginia, was second with nearly $19,000 in savings possible, while savings of $15,000 or more was possible in markets near the University of Delaware in Newark, Delaware; the University of Alabama in Tuscaloosa, Alabama; the University of Memphis in Memphis, Tennessee; and Louisiana State University in Baton Rouge, Louisiana.
But average home prices and homeownership costs vary widely from place to place — and in 4 of 5 college areas, paying for room and board remains more affordable than buying a home outright. For families of students attending Montclair State University in Montclair, New Jersey, for example, buying a home instead of paying for dorm life could cost over $160,000 more in three years, and losses would exceed $40,000 in several other college areas.
To that end, the report's authors urged parents interested in buying a home near their child's college to consider investing in cities where low property taxes and insurance rates, positive appreciation trends and lower mortgage payments make the costs of homeownership less than the area's monthly rent or dorm costs.
A long-term investment: The keys to making the investment worthwhile include choosing a low-cost home that likely won't depreciate, hosting roommates and taking out the right loan, according to the report.
If a parent or student chooses to buy, bringing in at least two roommates can over time help cover market rent and offset the mortgage payment. As an example, the estimated monthly cost of homeownership in Baton Rouge is $1,849, but when two rent-paying roommates enter the picture, that cost dips closer to $900.
As the report noted, this kind of investment decision can be complicated — but with other Mortgage Research Network data indicating it may take recent college graduates several years to be able to afford a home of their own, this option "could give the student a decade or more head start in their homeownership journey."