Mortgage Loan Program for Parents of College Students: Alternative to Paying High Cost of Rent or On-campus Housing

forbes-best-colleges-ftr-1024x640Recently, I was talking to my Mac consultant, who has a son in college, and he mentioned that he had heard of a special (not widely known) loan program designed for parents to buy condos for their kids to live in instead of paying rent or room and board. While the concept is one that is not new, I had not heard of a special loan program for this purpose. Knowing, as a real estate broker in Boston, how high rents are in the area, I was intrigued with this concept and wanted to know more. So I contacted Chris Devin, Senior Loan Officer at Guaranteed Rate, and here’s what I learned:

The Family Opportunity Mortgage is a Fannie Mae/Freddie Mac loan program that allows parents to finance a one unit home (or condo) for their son or daughter who is a college student. The parent purchases the property as a second home, but it will be the child’s primary residence.

So what’s the benefit of this mortgage option over buying the home (or condo) as an investment property? This loan allows for a lower down payment, less stringent owner occupancy condo requirements (if buying a condo) and a lower interest rate compared to an investment property purchase.

To take advantage of the Family Opportunity Loan program, there are requirements:

  • The child must be enrolled in a college. Documentation validating current enrollment is required.
  • Subject property must be within a “reasonable” proximity to the college or university that the child is attending.
  • Subject property must be a “reasonable” distance from the parent’s home in order to be classified as a true second home. Subject property can provide the parents a place to stay while visiting the campus, but it will be the child’s primary residence.
  • Property cannot be rented out. It must be occupied by the child for a minimum of one year.
  • Borrowers (parents) may not own an additional second/vacation home in the same locale.
  • Borrowers (parents) must provide a letter to the lender describing the purpose of the purchase.
  • Parents must apply and qualify for the loan, not the child. The child does not factor into qualifying for a mortgage.
  • Parents own the property. If the child is of legal age, the child may join the parents on the title, but it is not required.

Note: the “reasonable” proximity/distance requirements are open to interpretation.

This program is also available for families who buy (or refinance) a home for elderly, low-income parents or disabled adult children. However, different credit scores may apply.

Buy-vs.-rent-sign2According to Chris Devin of Guaranteed Rate, “For someone who has a child attending college in the Boston area and would rather not pay rent, the Family Opportunity Loan provides a great option to invest in real estate. With rents continuing to rise and rates still close to an all-time low, in many cases your mortgage payment could be less than the actual rent. This type of loan allows for a down payment of as little as 10% with very competitive rates. In a strong market like Boston, the Family Opportunity Loan it is a definite option to look into.”

If you’re paying high costs in rent or campus housing for your college student, the Family Opportunity Mortgage is an alternative worth considering! To learn more about this home loan program, contact Chris Devin. If you would like to explore the Boston real estate market as an alternative to paying rent for your local college student, I’d be happy to help you.