Parents sometimes choose to buy their college students homes instead of paying rent for dorms or off-campus housing. Cheap real estate, low mortgage rates, and high room and board fees charged by schools can make this a smart investment for many. FHA's non-occupant co-borrow program is nicknamed the "Kiddie Condo" program, but it’s not just for parents buying homes for children. Here are the facts on this program that might help you get into your next home.
Not Just for Condos
“Kiddie condo" is just a nickname. You can finance a lot of different properties with this loan – traditional house, condo, or manufactured home. However, it does have to be a single-unit property if you plan to make a 3.5 percent down payment. This is to keep people from using the program to buy investment property that they don’t live in. FHA will let parents finance a duplex, triplex, or fourplex with this program, but you have to put 25 percent down on your purchase. College students using this program (and ordinary humans) do get to have roommates and charge them rent.
Co-borrower Doesn't Have to Be a "Kiddie"
You can get financing of up to 96.5 percent of the purchase price if your co-borrowers are related by blood, marriage, or law (spouses, parents, kids, siblings, step-kids, aunts and uncles, etc.). But even unrelated people who can prove they have a "family-type, longstanding, and substantial" relationship can get a "kiddie condo" new home loan or refinance mortgage.
Everyone Has to Qualify
All borrowers must sign the note and agree to the terms of the loan. And everyone, whether they will be making the payments or not, has to pass a credit check. College kids with a limited credit history can be added to parents’ accounts as authorized users to boost their history. This is only allowable for relatives. Or, your child can use non-traditional credit--cell phone bills, internet service bills, or auto insurance payments to allow the lender to create a credit report.
Whoever Makes the Payments Gets the Tax Deduction
This becomes a factor when one borrower, such as a parent, is in a higher tax bracket than the other, or one borrower itemizes deductions (and could therefore take advantage of the deduction) while the other doesn't. The IRS is clear--whoever writes the checks takes the deduction. So check with your tax pro before you buy and sort out the deduction before tax time.
"Kiddie condos" can help anyone with a special relationship give someone a hand -- not just kiddies and the parents who want them out of the house.