A Kiddie Condo Loan can be a great investment strategy for both college students and parents alike. Despite their relative obscurity, these loans can provide significant financial and lifestyle benefits. Savvy parents can purchase a property for their college bound students and obtain an FHA loan for as little as 3.5% down. Their child, if a first-time homebuyer, can also qualify for the $8,000 tax credit if the home is purchased on or before December 1, 2009. In addition, the child can live in a more comfortable environment than the college dorms. The "Kiddie Condo" loan program allows the college student to co-borrow with a blood relative (eg. parent, grandparent, sibling, etc.) who assists them in qualifying for the loan by using their income or assets. Both parties sign for the loan as well as take title to the property.
There are several advantages to using this type of loan:
1. A low down payment (as little as 3.5 of the purchase price) rather than 20% to 25% required for most investor properties;
2. A lower owner-occupied interest rate on the mortgage vs. the higher interest rate normally charged to non-owner occupied investors (can save 1.5% or higher on the rate);
3. The student can start establishing a strong credit rating, to help them later on in life when they are on their own after graduation.
4. In order to take advantage of the "Kiddie Condo" loan program the child must occupy the property as his/her primary residence, must be enrolled in school and must have established credit. The child does not have to have income, if the parent can qualify for the loan. If the student has little or no credit, a qualified mortgage broker can help you establish credit through "non traditional credit avenues". Although rental income cannot be used to qualify for the loan, additional rooms in the property can be rented out to help defray the mortgage payment.
The property involved does not have to be a condo and can be a single-family residence or townhome. However, if it is a condo, there are several requirements that must be met in order for the property to qualify for an FHA loan.
In order to qualify for the $8,000 first-time homebuyer credit: 1) The student must not have owned a home within the past three years (it doesn't matter if the parent has or not); 2) The student must earn $75,000 or less per year (most likely not a problem for most students); 3) The student must reside in the residence for at least three years (or return the credit to the government); and 4) The tax credit is equivalent to 10% of the purchase price up to $8,000.
Although not all banks offer this type of loan, a qualified mortgage broker can help you find a bank and work with you through the entire process. If your son or daughter is planning on attending college this year, this program could be extremely beneficial to help you cut costs of traditional room and board expenses, help your student establish a sound credit rating, allow your child to take advantage of the first-time homebuyer credit and allow both of you to benefit from today's low housing prices and low interest rates.