Campus Cribs: Buying Real Estate Property for Your College Student
By Duane Duggan and Shannon Petrie, FrontDoor.com | Published: 7/03/2008
Talk to your accountant and attorney to determine the ownership method that works best for you. Some parents will buy as owner occupied property; others will treat it 100 percent as a rental property for additional tax benefits. There are many ways of holding title, including creating a Family Limited Liability Company (LLC).
Several options are available for financing your student property.
- FHA "Kiddie Condo" loans. If you want your student to be in title to the property and you want to pay the minimum amount down, using FHA financing is the easiest way to purchase a property. The FHA "Kiddie Condo" loan program helps students qualify for loans by allowing them to co-borrow with a blood relative. Down payments for this type of loan can be as little as 3 percent of the total purchase price, and interest rates are lower than those on investment properties. Maximum FHA loan limits vary by location so check to see what they are for your county.
- Non-owner occupied loans. Some parents will choose to own the property as investment property by putting 20 percent down and using non-owner occupied conventional financing. The Chase Family Opportunity Mortgage allows parents to classify the property as a second or vacation home, therefore allowing them to pay less in points than on a rental property mortgage.
- Interest-only loans. An interest-only loan, rather than a fully amortized loan, is another option. The advantage of using an interest-only loan is that it reduces the monthly payment.
If you're buying a condo, check the owner-occupancy ratio of the complex. This may affect the type of financing you can secure.
Help Your Child Establish Credit
If you decide to have your child on the mortgage and deed, help your child establish credit before you apply for a mortgage. Obtain a credit card in the student's name, preferably a year prior to your purchase. Also, if the student has a car, it's a good idea to have a small loan on the car in the student's name which can also help their credit rating.
