abcnews.com
I often get calls from parents who want to assist their children with the purchase of a home. Sometimes the child has poor credit so mom and dad want to co-sign for the mortgage loan. Given the new credit rules for mortgages, if someone has poor credit, co-signing will not help as the lowest middle credit score of all borrowers determines whether or not the loan will be approved.
Sometimes parents want to gift the down payment to assist their child. There are of course rules that determine how much down payment is required from a family member with each type of loan, and it is possible for a parent to gift the down payment without being on the loan or responsible for the mortgage.
What gets a little touchy is for a parent to buy a home for a child when they themselves are not occupying the property. Conventional lending calls this an investment property. In this case large down payments are required.
There is a way for a parent to help a child buy a home.
mylouisvillekentuckymortgage.com
The FHA loan program allows non occupying co-borrowers and does not require large down payments. The down payment factor is the normal 3.5% required by FHA. The 3.5% can come from either the child or the parent or a combination of both. Many times we see this loan used by parents for college age children because the parent has determined that it is more financially sound to purchase a property for their child or children while the child attends college rather than pay for housing-campus based or an apartment. Sometimes we see the loan used for children that have a job, but perhaps the job doesn't pay enough for the child to afford a home, so the parents help out by co-signing the loan which allows FHA to use the parent's income and assets to underwrite the loan.
The main requirement for the child in either of these cases is that the child must have a credit score. While FHA does not necessarily require the son or daughter to have a score, it is hard to find a lender that doesn't.
The way this program works is for the parents to be the non occupying co-borrowers. They have the same responsibility towards the mortgage as the child, but the parental income is added to that of the child as well as the debts for figuring the debt ratio.
If you are buying for your student it is probably a good idea to research the market you are considering for your purchase to be sure that housing is stable at minimum and hopefully appreciating so that you can make the right decision on whether paying rent makes more sense than buying. No one likes to be stuck with a loss.
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