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"Kiddie Condo" FHA loans aka Non-Occupant Co-Borrower Loans - What are they?

By Jeff Belonger

Mortgage and Lending with Social Media - Infinity Home Mortgage Company, Inc

July 19, 2008 11:58 AM

Belushi

Are you always looking for a great investment? Do you have any kids going to college or in college? Well, don't let the picture to your right scare you. Just that many of us can relate to the movie Animal House and John Belushi. That is not what college is about. But how about another way to help pay for your kids education?

So, what is a Kiddie Condo loan? It's your basic FHA loan that allows for a non-occupant co-borrower to help someone to purchase a home. The co-borrowers that will not be living in the home must be a family member/relative. Why the term condo? Just that condos in many college area where very affordable. But in my opinion, which I will show later, a 3 or 4 bedroom house would be a much better investment. Especially for the fact that you can usually get into the home with little or no money out of pocket. Again, I will explain this below.

As mentioned, college can be very expensive. I am going to use some basic numbers that won't apply in every college town or will be the same expense for a dorm room or an apartment. To find out more about these figures and a great way to invest your money while your kids are in college, please read :

The secrets of "Kiddie Condo" FHA loans (opens in a new post)

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Fred Chamberlin

Guild Mortgage Co - Oak Harbor WA - Oak Harbor, WA

Oak Harbor/Whidbeynulls, #1 Experienced FHA Mortgage Consultant

You know that Belushi and crew were filmed here at the University of Oregon, don't you? Great information Jeff. I have done them in the past and it is definately better than paying rent for four years. I can see a lot of work went into this post, sure hope you don't mind when I steal it. LOL

Jul 20, 2008 09:07 AM

Tracy Santrock

Santrock Realty Group Inc. , - Cary, NC

Raleigh - Cary Broker

Jeff,

My daughter will be going to college in the fall of 2009 so I need to evaluate my options. Thanks for this timely post.

Jul 20, 2008 11:15 AM

Jeff Belonger

Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ

The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

LISA.... wow, that's nice. But yes, I truly think that this is great information. Especially those realtors in a college town or parents having kids going to college. If you got really creative, you could certainly market this and help sellers, even if retaining the buyers.

JASON..... yea, I think we briefly talked about these in the past. Not only unique, but just having someone co-sign for you is a biggie. Because when it comes to conventional loans, it's a lot tougher with more requirements. And yes, Belushi rocked, especially in Animal House.

FRED..... yes, I knew that... about a year ago, when I did some research. It was very interesting..... thanks for the compliment. In regards to stealing this? Well, as long as you mention my name with link love, no problem then. thanks again for the compliment.

TRACY....... believe it or not, that will be here before you know it... ;o) I think you should definitely look into it and if you have a fistatesnancial planner, I would talk to them about this also. If you can get in there with hardly any money, that would be the best investment. If the DPA programs aren't around, such as Nehemiah and AmeriDream, you might still be able to use the other type of down payment assistance programs. Those of which are given by the townships or the state. thanks

Jul 20, 2008 04:32 PM

Anonymous

Jase

Thanks so much for the great article. I had a question I was hoping you could answer. I'm entering grad school and my dad wants to co-sign on a inexpenisve condo for me, around the $100k-$125k range. He has one of the highest credit scores on the face of the planet and a job take makes close to 6 figures. I on the other hand make enough that I could afford a $1100 mortgage based on a 28/36 qualifying ratio, BUT my credit score took a major dive to the 540 range because of a certain hurricaine a few years back. Would the kiddie condo program work for our situation? Are there any FHA programs that would take my dad's credit as the sole basis but still allow me to be on the mortgage? Thank you so much for you time and great website,

Jase

Jul 20, 2008 06:17 PM

#16

Missy Caulk

Missy Caulk TEAM - Ann Arbor, MI

Savvy Realtor - Ann Arbor Real Estate

Jeff, I see alot of this here in Ann Arbor. My question is the resident ( the student) qualified on his credit score or the parents.

Also what if it is not a student?

But, the parents are co-borrowers, who have high 800 scores, daughter has in the 580's. Which rate are they quoted, based on the child or the parents, if they don't want to pay the higher rate.

Jul 20, 2008 11:33 PM

Jeff Belonger

Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ

The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

JASE..... qualifying ratios aren't an issue here. Only conventional loans require that you still qualify with a certain ration, even if you have a co-signer. On an FHA, as long as you both qualify together.

In regards to the credit scores..... we would have to go off the lower of the two credit scores. There is only one type of FHA program for this to happen, in regards to having both you and your dad on this. And again, his higher credit scores won't make a difference. You can't use someone else's credit to better the situation, no matter if it's a conventional loan or a FHA loan. You just can't have a co-signer with worse credit.

Overall, if you were to just use your dad, then it becomes an investment property, which usually means a lot more money down and a higher rate. At least 10% down. The FHA loans only require 2.225% down and at least a total of 3% from the buyer, which includes the 2.25% down.

Any other questions, you can reach me at jbelonger@ihmci.com or on my cell # 609-440-5133 thanks

MISSY...... yes, you should see a lot of this in your area, considering that U of M is huge.... the funny thing about this program is that it actually doesn't matter if you are a student or not. As I mentioned, you can have a relative help you as a non-occupant co-borrower. Kiddie condo was just a slang term to market this to college students and their parents. It can be used anywhere, as long as you have a relative that basically co-signs for the mortgage, but isn't living in the property with you.

In regards to the credit scores, we have to use the mid score of the borrower with the lowest scores. And this is with any lender or investor, no matter what anyone says. Any other questions or if they need some help, just let me know. thanks

Jul 21, 2008 04:40 AM

Missy Caulk

Missy Caulk TEAM - Ann Arbor, MI

Savvy Realtor - Ann Arbor Real Estate

thanks Jeff.

Jul 21, 2008 04:52 AM

Stacie Colclasure

Gateway Holding and Referral Company - Bethalto, IL

Realtor, Bethalto, IL

Jeff, this is very good info. I live in a college town and, I've been considering making this a niche for myself. Thanks for posting this.

Jul 21, 2008 03:20 PM

Renée Donohue~Home Photography

Savvy Home Pix - Allegan, MI

Western Michigan Real Estate Photographer

U R the FHA expert! Great info Jeff!

Jul 22, 2008 01:58 PM

Jeff Belonger

Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ

The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

MISSY.... my pleasure...

STACIE.... thank you very much. I truly think that this could open up the doors not only for the consumer, but the realtor and loan officer... if they market it. And just a FYI.... I'll be licensed in IL. in about 60 days.

RENEE...... good to see you around, even though I haven't been around much. Thanks for the polite compliments.

Jul 22, 2008 05:02 PM

LLoyd Nichols

Premier Florida Realty of SWFL - Fort Myers, FL

Southwest Florida Homes By The Sea

Jeff, this is great information. FHA is a big deal these days and many more that one thinks can qualify for it, specially with a "kiddie loan" as you call it for example.

Jul 24, 2008 04:00 PM

Bob Gilbert

CU Members Mortgage - Tallahassee, FL

Glad to see this idea further fleshed out. I wrote a brief blog on it on July 2nd, repeated below:

FHA "Kiddie Condo" - is it gone? (edit/delete)

We used it to get kids into a home when they had no way to qualify on their own - no income, no assets, no credit history - and they had a family member who would go with them as a "non-occupying co-borrower".

(Ironically, since it was an FHA program, more often than not it could NOT be a condo)

Recently, FHA changed the rules - and people who have no traditional credit have to have "non-traditional" credit developed by lenders, and ALSO must have income and assets to qualify, EVEN if they have a family member willing to be a "non-occupying co-borrower.

Initially, this announcement made some think that "the kiddie condo is a thing of the past".

HOWEVER - the change only affects folks who have no traditional credit. As long as the occupying borrower has acceptable credit, the FHA still allows them to get into a home purchase entirely on the strength of a non-occupying family member's income, and assets.

The "Kiddie Condo" lives!

(Footnote - this is my first attempt at posting on Active Rain.)

BACK TO NOW:

I was only trying to point out that we could no longer do "kiddie condo" loans if the occupying borrower had no credit history (used to be that we could) - due to a recent change of FHA rules.

Jul 25, 2008 01:00 AM

Jason Crouch

Austin Texas Homes, LLC - Austin, TX

Broker - Austin Texas Real Estate (512-796-7653)

I left a comment on your outside blog, but I figured it wouldn't hurt to leave one here, too. This was a thorough analysis of this particular form of financing - interesting stuff! I hope you're doing well - let's talk soon.

Jul 26, 2008 03:49 PM

Fred Chamberlin

Guild Mortgage Co - Oak Harbor WA - Oak Harbor, WA

Oak Harbor/Whidbeynulls, #1 Experienced FHA Mortgage Consultant

I just wanted you to know, that not only did I mention your name I also said the information came from someone else so I didn't even get points for it. That is ok, I still think it is an excellent program that needs to be pushed.

Jul 29, 2008 08:18 AM

Jason & Ryan Nicewarner

Allied Home Mortgage - Bridgeport, WV

Jeff,

This is a great loan for parents of college-bound students. I also think it is a great loan for self-employed FTHB's. We've had several instances where we have a self-employed borrower who wants to buy a house but can't document his income or doesn't have the scores to qualify for a stated program. This program is great for those people too!

Ryan

Sep 04, 2008 07:25 AM

Paul W. Thompson

Homestreet Bank - Vancouver, WA

Going Above and Beyond...

Good info, Jeff.

By the way, that picture is of the late John Belushi, not James Belushi. FYI

This is good information as it is just a few years away until my daughter goes to college.

Paul Thompson

Wells Fargo Home Mortgage

Vancouver WA

Sep 14, 2008 05:48 PM

Patricia Kennedy

RLAH@properties - Washington, DC

Home in the Capital

Jeff, I've had some GW medical students whose parents paid their tuition with the appreciation on the condos and coops they bought when the kiddies started out. But even for those who found the market sucked at graduation, there was still a great rental market. They held on for a few years and had the same great results.

Dec 24, 2008 09:28 AM

Anonymous

Teresa

Great info...BTW it was John Belushi, not James. :)

Dec 25, 2008 04:12 PM

#30

Anonymous

Todd

Jeff,

My daughter will start college this Fall. She has only had part-time jobs, and probably will not work while in college. If she does work, it would only be part-time. So, she probably doesn't have much of a credit score, and really no income while in college. Would this type of loan work for us? Would she be able to qualify assuming my wife and I have excellent credit and good income?

Jan 29, 2009 02:17 AM

#31

Jeff Belonger

Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ

The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

I will get back to some of the other comments... but I wanted to answer Todd.

TODD.... . your daughter actually doesn't need a job, but it does help a little. But she does have to have credit to qualify. Nobody can just use your credit to qualify, when she is the primary and you would be a co-signor. This is different than cars. She would need basic credit... proving about 3 to 4 pieces of credit. .. and it can be non-traditional credit.

What state is she going to college in? I can be reached at jbelonger@ihmci.com or my cell.... 609-440-5133 thanks, jeff

TERESA.... yes, it was John.... lol.. I need to correct that. Sometimes my fingers type quicker than my brain.

Jan 29, 2009 02:43 AM