During my second year at the University of Virginia, I lived in the below house on 14th Street in Charlottesville with 11 other girls. One average, we each paid $300/month in rent. If our landlords’ monthly expenses were low (They weren’t putting much towards the upkeep of the property as you can see below, so they should have been low.), they were making a pretty penny every month on this investment. I also had a few friends in college whose parents decided to purchase a house for them to live in, charge rent to their son’s/daughter’s friends, and make enough to help offset the cost of college. It’s not a bad idea–especially with the rising cost of tuition these days. I’ve heard of many VCU and UR parents in Richmond purchasing homes for this exact purpose.
I recently worked with clients who were interested in purchasing a home for their college son to live in while he attended school. There are two widely used options for financing this type of purchase: 1) use an FHA loan with the parent as a non-occupying co-borrower or 2) use conventional loan buying as an investment property. There are drawbacks to each scenario. With the FHA loan, you have to pay upfront and monthly mortgage insurance. Going the conventional route as an investor, interest rates are higher and lending guidelines much stricter as I posted about here.
The good news is we offer a product called “Family Opportunity” which allows parents to purchase a property for their son or daughter as a second home. What’s so great about that? Interest rate pricing on second homes is MUCH better than interest rate pricing on an investment property. Here’s an overview of our Family Opportunity program for parents of college sons and daughters:
- Child must reside in a one unit second home
- Must document the child is enrolled in college
- Property must be close to the university
- Property must be a reasonable distance away from the parents’ home to be classified as a true second home.
- Property cannot be rented and must be occupied by the child for at least one year
- Borrowers may not own additional second homes in the same locale
- LOX from borrower describing the purpose is required
- The child is not an applicant on the loan
- The parents own the property–the child may be added to title if he/she is of legal age.
This product also works for adult children buying a home for an elderly parent and for parents purchasing or refinancing a primary residence for a disabled son or daughter.
Please feel free to contact me with any questions you may have about this product. If you are interested in this topic, here are some articles you may find helpful:
Originally published at Loan Officer Lately.