The FHA “Kiddie Condo” Loan
The FHA “Kiddie Condo” loan is an FHA mortagage between blood relatives (ex: parent and their child attending CSU). Both borrowers take title to the property, but only one borrower is required to live in the property to meet the FHA’s owner occupant requirement. The term “kiddie condo” is only slang. The property does not actually have to be a condo and can instead be any property meeting FHA financing guidelines.
3 Big benefits of the Kiddie Condo Loan
- – Low down payment, as little as 3.5%
- – Low owner-occupied interest rates versus a higher investor interest rate
- – Help for the new borrower(child) establishing credit
The perfect way to save thousands for your CSU student…especially if you have more than one.
With the rising costs of higher education more and more parents are looking into the option of buying real estate for their children to live in while attending college instead of throwing thousands down the drain in dorm fees and rent. According to the Colorado State website, housing costs range between $4,849 and $6,483 per semester. This is more than $10,000 per year. ….God forbid you have more than one student attending college.
Check out the following example to see what I mean…
Cost of housing at CSU for 4 years – $40,000
Cost of buying AND selling a $90,000 condo in 4 years – $11,563.69 (see numbers below)
A Real Life Example
Last week I walked through a $90,000, 2br. ~900 sqft foreclosure in close proximity to CSU. In addition to being priced well, let’s assume we would be able to get an even better deal by getting our closing costs covered as well which is typical right now. We’ll also assume that your child would have 1 roomate throughout college and we’ll charge them $400/month which is a great rental rate right now in Fort Collins.
|Closing Costs (covered by seller)||0|
|Mortgage Payment (per year)||$5,280.72|
|Annual Rent from roomate(400/mo)||$-4,800|
|Utilities for year||$600|
|Sale Price(1% appreciation)||$92,727.09|
|Title Costs ~1%||$-927.27|
|After Closing Net||$5,389.19|
|How it all Works out|
|Annual Costs x 4yrs||$-13,602.88|
|Total 4 Year Cost of Housing||$-11,563.69|
Reasons You Should NOT Buy Your Kid a Condo
1. Your kid is a spitting image of you at this age….I’ll let you determine if this is good or bad. Joking aside, you need to trust that your child is responsible enough to be a landlord. This means collecting rents, paying bills, and being willing to have the necessary conversations with roommates when issues come up.
2. Your kid is a spitting image of Jack Kerouac…I just read a statistic that up to 30% of freshman don’t return to the same school for their sophomore year. If your child is like me when I was in college, they’re probably thinking about doing something different each week. The last thing you probably want to do is make a multi-year investment assuming that your child is more committed to CSU than they actually are.
3. You overestimated the cost savings…Not every property is a sound investment. If you’ve never been a landlord before, make sure you do your homework and get familiar with all of the possible expenses you will entail. These include:
- HOA fees
- Maintenance Costs
- Property Taxes
- Property Insurance
- Closing Costs
- Realistic appreciation projections