I created a Harry Potter world, not sure how to go about playing Hogwarts.

Maybe I'm not understanding exactly what you are planning, but if "regular" sims in a defined household intended to be world residents in your game (as opposed to homeless NPCs there to perform services or staff role giving objects like maids and cash register attendants, etc.) do not live on a lot assigned to them, they become homeless and are subject to wandering out of your game. Without mods, the lot they live on must be a residential type.