FHA Kiddie Condo Program
It may be graduation time but, it’s never too early to begin considering your child’s college prep, particularly in terms of housing.
College Housing Alternative
In this unprecedented buyer’s market, you may want to rethink the notion of sending your college aged student off to live in either the traditional college dormitory, or the good old fashioned, bachelor pad rental house.
Did you know there are low cost alternatives?
FHA has a program, called the Kiddie Condo Program, which will help you as a parent purchase a home, with your student and get very favorable terms. In this article we’ll explore this program, and how it can benefit both you and your student.
Typically, if you were to purchase a home together with your college aged student, so they could live in it while attending school, it would have to be financed as an investment property. Investment properties however require significantly higher down payments, often 20% or more, slightly higher interest rates, and more assets in the bank.
The FHA Kiddie Condo Program allows you and your student to purchase a home together, as though you were purchasing a home in which you intended to live, a primary residence. Here are some of the details.
Expect to put down 3.5% on a property, as you would with any traditional FHA mortgage.
Income, assets and credit are used from both the parent and student. If the student has no income, the parent will need to be able to qualify while carrying both their own mortgage, plus the one on the Kiddie Condo property. If the student works part time, they will be able to use this income, as long as they can demonstrate they have been doing so for two years or more.
If the college home is far away and the student is able to transfer to the new city with the same company they work for now, so much the better. Otherwise, they may be unable to use income from a new job unless they have it prior to applying for the mortgage. There are many cases where the new income can be used to qualify.
If they have challenged credit, they will need to work on it before applying for this program. A parents very strong credit profile can wash a student’s negative history in some cases.
Ways to help build credit for students that are 18 years and older are to either add a child as an authorized user on a credit card, have them open a secured credit card, use it, and pay the bills on time.
If they have credit cards where balances are close to the limit, even cards with lower limits, have them pay them down to approximately 30% of the limit. This alone can help improve credit scores, often dramatically. Do not close any existing accounts, even if they are paid off.
Benefits to both parent and student with the Kiddie Condo Program
One great advance to the student, whether or not they work while they are in college is the fact that they will have a mortgage history on their credit report when they graduate. So now, if they either want to sell the property, or refinance mom and dad off if it at a later date, they will now have established credit.
A plus for the parent is that the student may choose to have paying roommates live in the property, to help offset the mortgage itself, or other college expenses. There also may be tax benefits, in that both property taxes and mortgage interest are often deductible, which will offset the overall expense even more. Check with your tax professional for more details.
Build Equity While Going to School
Let’s say for a moment that you were to buy a condo in a good market such as Boston, while your child is attending school. Over the next four years, it is very likely that property will have increased in value significantly. When your child graduates, you will have an opportunity to sell the property and most likely make a significant capital gain.
If your child decides to remain in the property after school, he or she will have a small nest egg built, while they are in the early part of their working life.
Give us a call here at Poli Mortgage Group, so we can give you more information about this FHA Kiddie Condo program. This is a remarkable tool in which both you and your student can participate together.