The name of the FHA Kiddie Condo Loans is a little deceiving. As the name suggests, you would think the program is for parents buying a condo for their kids. While this could be the case, it’s not the sole purpose of the program. It’s actually a program for any relative (blood or marriage) to help another relative buy any type of home, whether it’s a condo, townhome, or single-family home.
How Do the FHA Kiddie Condo Loans Work?
Generally speaking, the FHA Kiddie Condo Loans were set up to help young adults buy their first home. Whether the young adults were college students or recent graduates, they often didn’t have the income to qualify for a loan on their own. However, today, the program extends to not only young adults but also aging parents or any adult needing help buying a home.
The FHA Kiddie Condo program allows non-occupying co-borrowers to help a relative qualify for a loan. Keep in mind the keyword, co-borrower. This differs from being a co-signer. As a co-borrower, your name is on the loan and the title. If your relative defaults on the loan, you become liable for the payments. If the home goes into foreclosure, it shows up on your credit history.
However, as a co-borrower, you have ownership in the property. While you probably wouldn’t want it to come to this, but if necessary, you could sell the home and get some of your money back. As a co-signer, you don’t have any ownership rights and could find yourself without the ability to sell the home, yet obligated to make the defaulted payments.
What Relatives Can Help?
The FHA is known for their relaxed underwriting guidelines. This is reflected in who they consider an eligible relative for the FHA Kiddie Condo Loans program. Blood relatives are the easiest to get qualified to help you with the loan, but they are not the only ones. Any relative by marriage or even law may qualify as well.
The obvious options are parents and grandparents. However, aunts, uncles, stepchildren, and even nieces and nephews may qualify as a co-borrower. The FHA even goes as far as allowing non-related people help you with the loan as long as you can document a long relationship with this person.
The Down Payment
If you are familiar with FHA loans, then you know they allow a down payment as low as 3.5%. This is also the case with the Kiddie Condo Loan. Just as with a standard FHA loan, the 3.5% down payment requirement pertains to single-family homes, condos, and townhomes.
However, you can also purchase a multi-unit property with an FHA loan. However, you will need to put down a 25% down payment. This often offsets the benefit of the program which deters borrowers from purchasing that type of property. The FHA does this in order to avoid investors from taking advantage of this program.
The Benefits of FHA Kiddie Condo Loans
The FHA loan’s flexible guidelines are often the largest benefit of this program. But, there are other advantages relatives, especially parents, experience with this program. For starters, it’s often a great way for parents to get affordable housing for their college students. College room and board is often very costly as is the rent landlords charge in the surrounding areas. Using the FHA’s low rates and the Kiddie Condo program, parents can get low monthly payments and own the home rather than wasting money on rent!
Even if you are not purchasing a home for a college student, there are other benefits you and the person occupying the property can realize:
- Low-interest rates – Usually a mortgage for a non-occupying co-borrower requires higher interest rates because it’s considered an investment. This program gives the same low FHA rates to you, regardless of your non-occupying status.
- Tax advantages – If you are a parent buying a home for your child, you can still deduct the interest and any points you paid. If you are a relative helping another relative out, the interest and points are still deductible. You may want to split the difference, giving each of you a write-off.
- Help credit history – If the person buying the home has thin or bad credit, having a mortgage in their name will help boost their credit score. This could allow you to refinance off the loan in the future.
The FHA Kiddie Condo Loans offer many opportunities for relatives to help one another buy a home. As we stated above, it’s most common for college students, but in today’s economy, many people need help. The FHA makes it very easy for borrowers to get the help they need and buy the home they desire.