Rebecca Richardson - Mortgage Consultant
Buying a House For Someone Else? Here’s the Mortgage Strategy You Need
One of my favorite mortgage strategies, that not a lot of people know about, is called a Kiddie Condo.
This is where you have a primary borrower that's going to live in the home, and then you have one or two other borrowers that are on the loan.
These loans were designed to help young adults buy their first home, even if they did not have the income to qualify for one on their own. Today, the program helps this group but also aging parents or adults who need a more affordable solution to buying a home.
The most common example of this is when a parent purchases a home for their college student and the student is on the loan itself, making it a primary residence even though the majority of the loan is going to be based off of those co-borrower’s, the parents’ income.
This strategy is also helpful if a child wants to help their parents qualify for a home when they are on a fixed income.
Despite the name, the property does not have to be a condo. As long as somebody is in the home as their primary residence and the loan is supported by additional income, it can be considered a Kiddie Condo.
The reason this is such a valuable strategy is in the event that parents are purchasing a property at a university for their child to occupy and maybe even rent another room.
With a Kiddie Condo, the parent, for example, would be a co-borrower and not a co-signer. A co-borrower means your name is on the loan and title so if the child or relative defaults on the loan, you are still liable for payments.
Being a co-borrower also means having the right to sell the home, if you ever wanted to, to make back some of the money you invested.
Even though a popular arrangement that qualifies for this type of loan is a parent and child, doesn’t mean that others cannot benefit from it. Relatives by marriage and even in-laws can qualify as well, depending on your situation. Beyond just grandparents and parents, aunts, uncles, stepchildren, nieces, and nephews may also qualify as co-borrowers. If you can document a longterm relationship with someone, you may even qualify for an FHA loan to make this strategy work for you.
If the property is just in the parents name, it is going to have to be considered an investment property. This means a higher down payment and higher interest rate. If you can qualify with a child on the property and on the loan it's going to be considered a primary residence, allowing for a lower down payment and lower interest rate. What makes this strategy so great is how it makes purchasing a home more affordable, without the investor having to be a resident. You can often use either a conventional loan or an FHA loan, depending on your situation.
If you're thinking about purchasing a property for the benefit of a family member, this may be one strategy to consider that can help make it more affordable and a better long-term hold.