By Mike Colpitts
A tight mortgage market has triggered a jump in parents, grandparents and other relatives helping younger home buyers qualify for a home loan. Baby boomer parents have helped a son or daughter to purchase a home by co-signing for a mortgage, supplying down payments or purchasing a home outright in 20% of purchases in the last year, according to a Better Homes and Gardens survey.
The trend is being driven by a Federal Housing Administration program that allows blood relatives to be part of the mortgage process. The FHA is offering the “Kiddie Condo” program in an effort to re-stabilize the housing market and get younger home buyers to take advantage of lower home prices.
Close to record low mortgage rates, which averaged 3.90% last week on a 30-year fixed rate loan, just two basis points off their all-time low also account for part of the growing trend.
The program was branded as the “Kiddie Condo” plan since many parents are choosing to purchase their college age children a home while their attending college instead of paying rent for campus housing. The residence isn’t required to be a condominium under its guidelines, but may be any type of residential property, including single family homes, condos and townhouses.
The down payments are also lower than standard FHA purchases. Only 3% is required for mortgage borrowers who qualify for the program as a down payment, and mortgage rates are lower than conventional rates offered to home purchasers.
“The changing timetable for adulthood,” is a sociologist’s phenomenon. The program has been explained as a new part of the 20-something generation entitlement culture. The transition into adulthood typically carries five milestones, according to sociologists, graduating from school, leaving home, becoming financially independent, marrying and having a child.