When your child moves out and heads to college to start his journey into the career world, empty nest syndrome may rear its ugly head. In addition, the sting of the financial burden can hurt even more intensely. Tuition is expensive enough, but add to it the monumental cost of student housing, and your bank account may never know what hit it.
Because college housing costs have increased to epic levels in recent years, parents of college students have opened their minds to researching alternatives. Many have discovered the Federal Housing Administration (FHA) non-occupying, co-borrower rule, which has been aptly nicknamed the "Kiddie Condo Loan."
The Kiddie Condo Loan allows parents to take advantage of low down payments and favorable terms to help their college-bound children purchase a home, instead of wasting thousands of dollars on student housing. College students would never be able to qualify for a mortgage but, as a co-borrower alongside their parents, home ownership is definitely within reach.
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Eligibility And Requirements
To qualify for the loan, one of the borrowers must live in the purchased property. Though the program is nicknamed the Kiddie Condo Loan, the FHA doesn't require applicants to purchase only condos. Single-family homes or townhouses are also eligible.
Both parent and child must apply for the loan together, even if the parent will be responsible for making the payments. The parents' credit is what makes the loan application favorable to lenders, because a college student would most likely be lacking the credit history necessary to qualify alone. Lenders may request additional documentation if they deem an applicant has an insufficient credit history, although lenders vary in their eligibility requirements.
The maximum loan-to-value (LTV) ratio for borrowers is 75 percent; unless the co-borrowers are related by blood, marriage or law. According to the FHA guidelines, maximum financing is available for spouses, parents-children, siblings, stepchildren, aunts-uncles, nieces-nephews and unrelated individuals who can document evidence of a longstanding family-type relationship, not arising out of a loan transaction.
Non-occupying borrowers are eligible to purchase multiple-unit properties, as long as the LTV doesn't exceed 75 percent. If the LTV does not meet this requirement, borrowers are limited to one-unit properties.
Advantages Of Kiddie Condo
The FHA offers loans with low down payments, and applicants of the Kiddie Condo Loan can take advantage of this benefit. Additionally, the interest rates are competitive, because the property is not considered an investment, and the child can assume the loan once he or she has the funds to pay the mortgage. A refinance is not necessary.
After paying exorbitant tuition costs, parents can rest easy and eliminate some of the financial burden. Though they'll still make payments and be responsible for a mortgage, they'll have a huge perk: When their child graduates from college, she'll not only be carrying a diploma, she'll be carrying a lifelong investment.