Las Cruces is a college town. According to the New Mexico Higher Education Department, there are 22 other communities in the state. What do they all have in common? College kids who need a place to live. In many cases, parents or grandparents pick up the tab for their offspring’s housing. Some shell out hundreds each month for rental payments, while others purchase a home and assume the role of their kid’s or grandkid’s landlord.
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One of the most common obstacles that deter parents and grandparents from purchasing is the amount of cash required to swing the deal. That’s because lenders often lump parents who don’t intend to occupy the property into the same category as investors, who are typically required to make a down payment of at least 20% of the purchase price. Another common obstacle is the fear that the property won’t increase in value over the term of their kid’s educational journey to allow for a profitable exit. And then there’s the horrifying possibility that their youngster will quit school after one semester, even if it’s for a cause as noble as joining the Peace Corps. Peace Corps possibility notwithstanding, it’s been years since market conditions have provided a more favorable atmosphere for overcoming the other two hindrances.
The large down payment requirement can easily be defeated through the use of an FHA Kiddie Condo loan, which requires a down payment of just 3.5 percent of the purchase price. The basic premise is that the parent and kiddie cosign, with the kiddie occupying the property. It’s the strength of the parents’ credit that makes the deal work.
The Kiddie Condo name is misleading because the loan can be used on just about any single-family home, townhome, condo or doublewide (or larger) mobile home that’s taxed as real estate. In addition to sons and daughters, eligible co-borrowers include brothers and sisters, stepchildren, grandparents, nieces and nephews, and unrelated people who can demonstrate a “family-type, longstanding and substantial relationship,” according to FHA. The ages of the parties are not an issue. For example, a 25-year-old grandchild can cosign for a 75-year-old grandparent, and vice versa.
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Overcoming the “Will I be able to make a profit?” anxiety is also possible, according to the National Association of Realtors Rent vs. Buy calculator. The site reveals that a person purchasing a $200,000 home in the Las Cruces 88001 zip code would save $9,525 or an average of $265 per month over renting for three years. Other zip codes produced similar results. Bring aboard a couple of roommates paying $300 to $400 per month each in shared rent and utilities, and the cost of ownership diminishes significantly.
If you do decide to take a closer look at the Kiddie Condo possibilities, you may want to begin by having a serious discussion with your young’un about that Peace Corps thing.
See you at closing.
Gary Sandler is a full-time Realtor and owner of Gary Sandler Inc., Realtors in Las Cruces. He loves to answer questions and can be reached at (575) 642-2292 or Gary@GarySandler.com.
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