Give your kids the gift of home

Flickr photo by Fauxen.

If you saw a nice home for sale near a college or university before your youngster began the fall semester, perhaps you could help that child -- or another potential first-time homebuyer in your family -- get into the door of that home while taking advantage of a terrific tax incentive at the same time.

In a recent article, we explored the possibilities of owning an investment home near a college campus and having a college student live there as an alternative to an on-campus dormitory. What if your child were handed an $8,000 tax credit, or downpayment incentive, to purchase that home? Would that change the picture?

There are still several loan programs that allow a "non-occupant" co-borrower (parent). The rules vary depending on the program, but the most popular option is still an FHA-insured loan. Here is a breakdown on the guidelines:

• FHA will allow a non-occupant co-borrower (on the loan and on title) or co-signer (on the loan but not on title).
• The minimum downpayment is 3.5 percent of the sales price, subject to county limits.
• Qualification is based on the combined income and debts of the borrower and co-borrower.
• The co-borrower/co-signer may not be a party that has an interest in the transaction (e.g., the seller, builder or real estate agent). Exceptions may be granted if the seller and co-borrower/co-signer are related to the owner by blood, marriage or law.

According to the Internal Revenue Service, a child who is a first-time homebuyer is entitled to the tax credit even if the parent co-signs the loan. The tax credit is equal to 10 percent of the home's purchase price up to a maximum of $8,000. It can also be applied to the downpayment once 3.5 percent of the purchase price comes from other funds.

For example, let's say the home's sale price is $300,000. The buyer would need a minimum of $10,500 ($300,000 multiplied by 3.5 percent) to close the sale via an FHA-insured loan. However, if an additional $8,000 were applied via the tax credit, the amount borrowed would be lower ($281,500 instead of $289,500). Amortized over 30 years at 6 percent interest, monthly payments would amount to $1,687.73. Add an additional chunk for mortgage insurance, taxes and insurance and the total monthly housing obligation would be $2,100 -- or $700 apiece for three occupants -- not including food. ...CONTINUED

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