Sunday, March 22, 2009

FHA Kiddie Condo Program

A Mother and fathers 20-year-old son was preparing to attend Clark Atlanta University. The parents questioned whether he should shell out money for his son's rent, or invest in a condominium where his son could spend his college years.

He decided to buy.

To rent a home in the university area is not comparable to buying. Many rentals are located in areas with high crime rates and congestion, he adds. And paying rent would not earn a financial return on his investment.The parent is buying a brand-new, 800-square-foot oversized studio near the AU for $129,000. The monthly mortgage payment will be between $700 and $900, a little more than what he was planning to pay for rent. In addition, the parents will in all likelihood be able to recoup college expenses by selling or renting the property after his son completes school.

These parents are one of many parents throughout the country choosing this route. The rationale is fueled by a number of factors: The ever-escalating costs of college; the attraction of real estate as a relatively safe investment; and the possibility of making a profit in a short amount of time during the current real estate boom.
And it's not just parents who are the potential buyers. Many college students laugh at the idea of buying a home because they say they're broke or they just don't understand the process.I saw my college friends go through college and live in questionable and curious places and I saw how they lived and threw money away.
I have created a hip and colorful tri-fold brochure, which I place at spots around the AU Center area, which lays out the very basics of buying a home, defining things like mortgages, appreciation, down payments and equity.I have addressed many students who couldn't grasp the idea andI found they needed to be educated. They need to be equipped.
I have started this new venture early this year and have had the pleasure on being a part of many success stories

Nationally, students attending four-year, postsecondary public schools disbursed an average of $6,222 for room and board expenses in 2007-2008, up from $5,475 in 2006-2007, according to statistics from The College Board, a nonprofit association comprising more than 4,700 schools, colleges, universities and other educational organizations. Tuition and fees rose during the same period from $4,645 to $5,132 per year.If someone buys a home for $150,000 with 5 percent ($7,500) down and an interest rate of 6 percent, the monthly mortgage payment would be $854. At the end of four years, equity in the home will have increased to more than $19,000. If the home appreciates at an annual rate of 3 percent during the same period, the amount equity will jump to more than $34,000 -- full reimbursement for the average tuition costs for four years, as well as additional income.

The altogether point of this post is to generate thought on your part on how you perhaps may be able to use a FHA "Kiddie Condo" loan as a resource to make your childs' college education more financially palatable or even possible for you to manage. The child/student could obtain a FHA loan with the parent(s) signing as non-occupant co-borrowers. The following example or scenario is presented. You can substitute your own numbers to any of this based on your own research.
Housing expense will range all over the board as well. For discussion and illustration purposes in this post I will use $6000 a school year or annualized...$500 monthly. Quite frequently
Single Family 3/2 home, purchase price $160,000, interest rate of 6.25% fixed for 30 years, 2.25% down payment. A calculation of 5% of purchase price for total required investment (down payment and settlement costs) or $8000. This will obviously vary somewhat based on the typical costs for the area.

Utilizing the above terms the monthly housing expense is $950 principle and interest, estimated $350 for taxes, insurance and mortgage insurance premium for a total of $1300 monthly piti. Because your child will not be in dormitory housing we will add $300 each month for utilities bringing the total monthly housing cost to $1600 a month or $19,200 on an annualized basis. Yes, quite a chunk of change! But let's do a stubby pencil drill and tweak the numbers to further explore the possibilities.

In this scenario we're purchasing a three bedroom home which would house from 3 to 6 students depending on how you choose to set up your concept. Let's use 5 (your child and 4 tenant students) which would probably give your child a bedroom/study area to themselves. Let's assume that you set the student tenant rents at $4800 per year in an effort to attract tenants with the affordability. $4800 x 4 is $19,200 per year in gross rental receipts. This means that you have saved $6000 a year, $24,000 over the span of a 4 year college degree and your child has lived there for free. Not to shabby....right? Right....and it gets even better!!

Let's go over your achievements which can be any one thing or any combination of things. Your child has lived at that place for free, you have utilized this savings to offset the cost of tuition and fees, you have eliminated or reduced the amount of student loans called for to get your youngster through college, etc, etc.,.....and you've increased the the equity position in the home. First by approximately $8000 in principle decrease and using a humble appreciation rate of 4% year over year an additional $25,000+/- for a total of $33,000. You have helped your child to start a credit record which will pay many dividends down the line.

Monthly mortgage payments also can be extenuated by renting extra rooms to other college students. In comparability, THIS IS THE KEY!!!rental payments are gone for good.
There's no question more parents of college-aged kids are looking at investing in real estate rather than paying rent.

There is a numerous number of condominium, townhome and mixed-use projects near the AU Center. Over the past few years, 30 percent to 40 percent of the units I've sold in the university area -- about four to five a year -- are to parents of college students. Most of the sales were for homes priced at less than $200,000 and very near to AU.

Properties near AU are appealing for many from an investment standpoint because they tend to retain their value and can be rented at a later date, not to mention the possiblitly of qualifying for City grants that can net you up $100,000 off the price of your home. Homes in the AU area have some of the highest rates of appreciation in the city.

Many parents and their college-aged minors use the nonoccupying, co-borrower loan program, also referred to as a "Kiddie Condo" loan, under the Federal Housing Administration. A direct blood relative can co-sign on the loan with the college student. The FHA will lend up to 97 percent of the purchase price, meaning a down payment of only 3 percent is often required. Interest rates depend on debt-to-income ratios of both parties.

Allow me to assist you in working with the Kiddie Condo loan program.Absolutely a brilliant strategy

Without doubt, college and career prep is one of the hardest issues for most American families to deal with. Like a lot things in life, the cost of a college education has soared over the past few years. Still if your child is advantaged enough to obtain scholarship assistance paying for their education can still be unreachable for many families.

Annual tuition and fees can range all over the board depending on the College or University, whether it is public (in-state, out-of-state) or private. In all likelihood $10,000 to $30,000+ annually. If your child has obtained scholarship(s) you are further ahead than most American families. Tuition and fees, for the most part, are going to be what they are going to be. Housing expense will be the chief expense that may be more controllable for you.

1. Sell and recoup funds
2. Payoff student loans
3. Sell and contribute toward graduate school
4. Sell and contribute to your child's purchase of their first "real" home to start of their new life and career
5. Keep as rental investment property to further fund graduate school
6. Follow-on college bound children to occupy and continue the savings and equity building
7. Whatever else is important to you and your child....dare to imagine!

There is nothing absolutely new about this concept....but centering can be lost or data doesn't always continue to flow steadily....or it just never crosses the mind that is why as professionals look forward to educating the consumer.So if you are consumer with college bound children...explore these possibilities! As a Real Estate professional or a mortgage loan officer please let us help you understand the "Kiddie Condo" concept!

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