Give Them a Helping Hand
Give Them a Helping Hand: Utilize Homeownership to Benefit Your College Kids or Parents
Help your family offset expenses while maximizing the advantages of owning a home.
As college tuition continues to rise along with housing costs and rents, I’m surprised more parents don’t consider utilizing homeownership to help offset the overall costs. Did you know that if you have students attending college, or even if you have elderly parents, you can buy a home for them and it can be treated as a primary residence?
Not Your Father’s Investment Property
Typically, non-owner occupied properties are treated as investment properties, which require a minimum of 15-25% down. Additionally, when the home is not your primary residence, the interest rate can typically be 0.5% - 1% higher, so the interest costs you more monthly. However, if a child or parent lives in the home and can’t qualify for a mortgage on their own, lenders can apply primary residence financing guidelines to the property.
Let’s Do the Math
The average college rental rates currently exceed $1,000/month. So, one year of rent paid could add up to the minimum down payment of 5% on a $240,000 home purchase. With appreciation over four years at 3%, which is less than the national average, you could potentially more than double your initial money invested. Since interest rates are at all-time lows right now, you can finance a $300,000 purchase for around $1,800/month. Split this between three or four friends paying $750/month, which is cheaper than most other college housing rents, and then do the math: $750 x 3 = $2,250 or $750 x 4= $3,000/month. Your son or daughter could live free, not including the down payment investment!
Speaking from Personal Experience
My mom has been a REALTOR® for 30 years, so it was natural that I bought a home during my sophomore year in college. I was working full-time while pursuing my degree, so I could qualify for a mortgage on my own with down payment assistance. I had to put approximately $1,000 down on the home, then my roommates helped pay my mortgage and monthly utilities. After finishing college, I sold the home and made $10,000 of net profit to help me pay down student loan debt.
Not Just for College Students
This kind of financing can also help elderly parents. With growing health concerns in large elder-care facilities due to COVID-19 and other factors, people can provide safer housing for mom and dad while also offering a higher quality of life to truly enjoy the newest chapter of their lives.
One potential down side is not being able to sell the property. But if the rental price is attractive enough to create cash flow without your child paying, the home could actually generate income with an additional paying tenant. This can also be your first step toward an investment property portfolio at much better terms, so long as you are helping a parent or a child with their housing needs.
Rent costs are going up every year, but buying a home locks in the monthly payment for up to 30 years. For example:
- After 30 years, a $1,000 rental payment would be $2,050 based on a 3% average annual rental rate increase.
- Mortgage rates currently are lower than the rate of inflation, so it’s a historically affordable time to finance real estate.
- 5% down vs. 15-25% down is an easier step toward building a rental portfolio (your parent or child must live in the home and not be able to qualify for a mortgage on their own).
Based on the numbers alone, this approach to financing a property is a fantastic option. Add in the personal benefits you can provide for your younger or older relatives and it’s a win-win for everyone involved. Let’s connect if you’d like to learn more or start the mortgage process!
CrossCountry Mortgage, LLC is an FHA Approved Lending Institution, and is not acting on behalf of or at the direction of HUD/FHA or the Federal government. All loans subject to underwriting approval. Certain restrictions apply. Certificate of Eligibility required for VA loans. CrossCountry Mortgage, LLC is an FHA Approved Lending Institution, and is not acting on behalf of or at the direction of HUD/FHA or the Federal government. All loans subject to underwriting approval. Certain restrictions apply. Certificate of Eligibility required for VA loans. USDA Loans: Borrower income limited to 115% of median income for the area. Borrowers must have reasonable credit histories. 30-year loan term. Housing costs cannot exceed 29% of income; total debt payments cannot exceed 41% of income. Homes must meet state and HCFP building codes. Funding fee required. Available only in designated USDA rural areas.