An FHA Mortgage could drop the cost of college

November 07th, 2011

As state nationwide run into money problems, many are cutting significant funding from their college and university systems. In turn, colleges and universities are raising their fees for students to make up the difference. Housing is one of the most-targeted areas for costs increases. Some parents pay $1,000 or more per month for their son or daughter to share a small room, have showers and bathrooms down a coed hall, meals not included.

Can FHA's "kiddie condo" program help?

If your student is over the age of 18 and can legally enter into a contract, you might find that buying a condo unit or small home near his or her campus will ultimately be cheaper than paying college housing fees. FHA non-occupant co-borrower mortgages (refered to as "kiddie condo" loans by mortgage professionals) allow parents to co-sign for their children and obtain owner-occupied financing for their home purchases with as little as 3.5% down.

How much can you save?

To estimate what you and your child might afford, input your monthly income, funds available for down payment, FHA interest rate, and your monthly debt obligations (including your current monthly home payment) into a free mortgage prequalification calculator. Alternatively, use free mortgage loan payment calculator to estimate the maximum monthly payment that you would feel comfortable with, to determine the size of an FHA mortgage for your potential off-campus housing purchase. Either way, a calculator can suggest a pretty good ballpark sales price to begin your search.

Some quick examples. If you are paying $1,000 per month for dorm fees, that is equivalent to a $150,000 home at a 5% rate with an FHA minimum 3.5% down payment. If you are paying only $850 per month for dorm fees, that translates to a home valued at approximately $125,000. And some of these costs can be offset with income from a roommate and any appreciation in the home's value.

Other benefits of college home ownership

Added benefits of converting your dorm fees to mortgage payments include:

  • Your child's housing fees are fixed for the entire college stay.
  • During the summer your student has a place to stay while working at a summer job.
  • You know your child will have a reliable and safe place to live and study.
  • Help teach your student responsibility, increase independence, and learn how to manage a household.
  • Help your child establish credit.
  • Dorm rooms never appreciate in value to your benefit; college homes eventually do.
  • When your child graduates you can make the property a graduation present or convert it to a near-campus rental property.
  • If your son or daughter considers a post-graduate degree nearby, housing is already taken care of.
  • You may acquire some tax advantages (check with a tax pro).

Getting started

If considering a condo purchase, keep in mind that FHA has only finances approved condo projects. Check with your mortgage professional to ensure your student's condominium complex is FHA-approved.

Buying off-campus housing can provide some tax benefits, fix housing costs, provide revenue through roommate(s) rent payments, offer potential appreciation, and provide a more stable and peaceful living environment for your son or daughter. FHA allows you to obtain these benefits with low interest rates and a low down payment.

Posted By :

Dennis is co-owner and broker of record for Stratis Financial in Southern California. With over twenty years experience in the mortgage industry he has helped thousands families purchase homes. His Weekly Rate and Market Update keeps his clients and real estate professionals educated and informed on the mortgage industry and the economy. Dennis has a degree in Economics and Political Studies from Pitzer College and is married with two children.

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