Kiddie Condo Program and the FHA 203k Loan Program
One of the least none but hugely positive attributes of the FHA 203k Loan is that the loan permits for the use of non-occupant cosigners. This means an eligible credit qualifying home buyer who lacks the ability to support the loan request based on income qualifications, still may be in a position to obtain a mortgage loan with the assistance of a cosigner who will not live in the property but acts as a guarantor on the loan. And of all loan programs available only FHA loans offers this benefit.
This benefit has also been known by its nick name as "The Kiddie Condo Program." At one time it was an investment strategy for parents to cosign on a loan for their college bound students to purchase an off campus condominium, have their child live in the condominium in lieu of paying room and board in a dormitory, then sell the condo at a profit upon graduating. The parents would cosign for their children, thus ensuring that the student showed the appropriate level of income to support the mortgage loan.
With declining home values, especially amongst condominiums, the concept behind The Kiddie Condo Program has lost much of the appeal over the last four years. However, there is still a real benefit by having the option for a parent or other family member to cosign on behalf of a home buyer looking to purchase a house that doesn't have adequate or documentable income to qualify for a mortgage loan.
Often is the case that the buyer does in fact make enough income but the income can't be used by a lender due to length of employment or type of employment. For instance a commission sales person's income can only be calculated for loan qualification purposes if they have been with the same company for two years. Or the salesperson may be with the same company for two years and their income is rapidly increasing, but the Underwriter is only allowed to calculate the income based on the previous two year average instead of just using the most recent annual income.
For self employed home buyers a lender will use two years of tax returns to determine the net income of the borrower. Frequently self employed borrowers may make more income than they actually document on their tax returns which precludes them from qualifying for the mortgage loan. Or a borrower may go from being a W-2 employee to being categorized as a 1099 Contractor, even though their job and employer is the same, which again requires a two year history of self employment income.
With an ample inventory of houses, many of which can benefit from using a renovation loan, such as the FHA 203k loan. The 203k loan allows home buyers new opportunities to purchase houses under favorable terms. Many home buyers may easily be able to afford the monthly mortgage payment, especially with home prices being affordably priced, but are challenged on income qualifying for the mortgage loan. For these home buyers just keep in mind that there is hope with the use of a non-occupant cosigner.
To learn more about your financing options through the FHA 203k Renovation Loan Program complete a contact form or call (866) 747-2882 to speak to your Nationwide FHA 203k Renovation Loan Experts.
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