Many years ago, before the huge frenzy of a Seller’s market we had in the early ’00s, parents sometimes invested in buying a home for their kids during the years they went to college. Many times they would put their children on title and the mortgage as a way of teaching the responsibilities of home ownership as well as the many benefits of home ownership.

As the years passed and the kids graduated from college to move into the world of work, the parents would sell or gift their ownership interest in the house to their children or rent it out as an investment property or outright sell it. The real benefit of owning a home during the kid’s college years was that the parents actually got a financial return and the kids had a place to live.

Why College Park, MD Is Prime Real Estate For “Kiddie” Homes

College Park, MD is home to a pretty large university – the University of MD. As I understand it there are well over 35,000 students. And that’s only the undergraduates.  A lot of those students are housed on campus.  A lot must look for homes off campus either in various condo buildings scattered around College Park or in single family homes owned by investors.  In fact, there is a great shortage of off campus housing for students.  That’s what makes College Park, MD such a great place to own real estate.

So wouldn’t it make sense to own instead of rent?  Let’s see how.  Here are two ways to do it:

1. Buy a home outright as an “investment” property.  This means that you don’t plan to live in it at all.  You plan to buy it, rent it out to people you don’t know (or your kids) and then sell it sometime in the future.  This way requires excellent credit (over 680) and at least a 20% down payment. Plus the interest rate will run ¾% to 1% over the current market rate. Ouch!
2. Buy the home with an FHA mortgage with at least one family member (presumably your kids) living in the house and named on the title and mortgage. The credit score requirement is much more flexible, the down payment requirement is currently 3½% and the interest rate is the “owner occupant” rate – currently around 5½%. Yay!  Less money down, smaller interest rate, less than perfect credit allowable.

What’s The Catch?

The catch with FHA mortgages is that at least one of the folks on the mortgage must occupy the house.  They don’t have to qualify for the mortgage in any other way – income, job, credit score.  That’s the job of the non-occupant owner – the parents or other family member. The income and debts of all the people involved are taken as a group and then used to qualify for the mortgage.

Sweet, huh?

This also works for older folks as well. Say you have an elderly parent or grandparent that you want to move close to you (but not in with you). You can use FHA mortgages to buy a small condo or rambler down the street from your place for the elderly parent so you can peek in on them from time to time. They get to keep their independence and you get to keep your sanity while enjoying a great real estate investment.

If you’re interested in more details about how this might work for your kids or any other member of your family, just shoot me an e-mail or call at 240-417-9100