If you have a child attending (or will be attending) college and want to increase your real estate portfolio, then a Kiddie Condo loan might be for you.

As a real estate investor with extensive experience in diverse investment properties, I’ve become intrigued by the potential of the Kiddie Condo loan program from the Federal Housing Administration (FHA).

The key to successfully investing with a Kiddie Condo investment is timing and location. Ideally, you would have a child going to college who needs a place to live. But instead of having them live on campus in a dorm, they get a place to live and the opportunity to build their credit, and you get a great way to increase your investment potential.

Discover the potential impact of Kiddie Condo Loans on your real estate investment strategies with this article from Nic’s Guide.

  • What It Is: A Kiddie Condo loan is an FHA-backed mortgage that enables co-signing between parents and their adult children for real estate investment.
  • Advantages: Offers low down payments, property type flexibility, and rental income potential.
  • Disadvantages: Involves permanent Mortgage Insurance Premium (MIP) and shared financial responsibility, requiring a reliable and responsible co-signer.

What is a Kiddie Condo Loan?

A Kiddie Condo Loan is an FHA-backed mortgage facilitating co-signing between parents and their adult children. This loan empowers both to jointly venture into real estate investments, utilizing FHA financing, while requiring the child to reside in the property for at least one year.

The Kiddie Condo Loan and House Hacking

If you haven’t heard of “house hacking,” it’s a strategy favored by knowledgeable investors and involves renting out parts of their primary residence to offset living costs.

A Kiddie Condo loan offers a novel twist to this approach, especially if you have a child about to go to college. You and your child are the owners, your child is the primary resident, and you rent out the additional rooms to other college students, which you can then use to pay your mortgage.

And college towns are actually better investment opportunities. Check out these stats from Hire-A-Helper about real estate investing in college towns:

  • The 2023 average home price in college towns was $377,800, 7% lower than the national average.
  • Annual appreciation in college towns was 4%, surpassing the national growth rate of 1.6% in home prices.

As you can see, college towns can be a lucrative real estate investment opportunity if done correctly.

So, How Does It Work?

Here’s how to set up a Kiddie Condo loan to work for you.

  1. Purchase a property, find a mortgage broker, and have your child be the co-signer and primary resident.
  2. Your child occupies one bedroom for at least one year.
  3. The other rooms can be rented out, presumably to another college student or students, turning this into a rental property.

Simple, right? A Kiddie Condo loan not only provides a living space for your child but also generates rental income, which you can use to cover part (or all) of the mortgage payments.

This ingenious strategy optimizes the use of your property, creates an additional income stream, and introduces your child to the world of real estate investment. It’s a win-win… win situation!

How to apply for an FHA kiddie condo loan? 1. Reasearch and preparation 2. Find a mortgage proffesional 3. Complete the application 4. Co-signers infromation 5., Appraisal and underwriting 6. Loan approval and clossing.

Advantages of FHA Kiddie Condo Loan

FHA Kiddie Condo Loans offer a range of benefits for investors eyeing real estate opportunities. These advantages make this loan type particularly appealing:

Benefits of FHA kiddie condo loans
Easier qualificaiton, Lower interest rates, Establishing credit, Building up Equitiy, Potential tax benefits.

Lower Down Payment

One of the standout features of FHA Kiddie Condo Loans is the significantly reduced down payment requirement.

Unlike conventional loans that may require up to 20% down, FHA loans often need as little as 3.5%. This lower upfront cost makes entering the real estate market more accessible. For instance, a $100,000 property would only require a $3,500 down payment instead of $20,000 – making this a great investment strategy with just a little money.

Financing for Multi-Unit Properties

These loans aren’t limited to single-family homes. FHA financing can extend to properties with up to four units, like duplexes, triplexes, or fourplexes. This allows your child to live in one unit while renting out the others.

Competitive Interest Rates

Another perk of FHA Kiddie Condo Loans is their typically lower interest rates. This means lower overall costs over the life of the loan, making them a savvy choice for financing long-term property investments.

Because of these lower rates (as of May 23, 2023, the average FHA rate was 6.60% while the conventional rate averaged 7.016%), they are becoming more popular.

According to Redfin.com, “Roughly one in six (16.4%) U.S. mortgaged home sales used an FHA loan in April, the highest share since February 2020, just before the pandemic began. That’s up from 10.4% a year earlier, representing the largest year-over-year gain on record.”

No Requirement for Owner Occupancy

A unique aspect of FHA Kiddie Condo loans is that the principal investor doesn’t need to reside in the property — a major component (and drawback) of a traditional mortgage.

With a Kiddie Condo loan, your child is the principal resident in the home instead of you, providing flexibility for the investor (you) to manage other real estate investments.

Another great benefit is that your child must only live there full-time for one year. So, if your child moves out after a year, you can still keep the renters and earn income.

Downsides of FHA Kiddie Condo Loans

While FHA Kiddie Condo Loans present attractive opportunities, weighing their potential downsides is essential. Being aware of these can help you make an informed decision.

Risks and considerations of FHA kiddie condo loans: Financial Responsibility, Relationship strain, Limited ownership rights, Impact on Future opportunities, Potential loss of investment.

Permanent Mortgage Insurance Premium (MIP)

A significant drawback of Kiddie Condo Loans is the permanent nature of the Mortgage Insurance Premium. This fee, paid monthly, ensures lender protection in case of default. However, it also adds to the long-term cost of the loan. It remains throughout the loan’s lifetime, regardless of equity built or appreciation in property value.

A permanent MIP can increase your monthly mortgage payments, which you must budget for. Considering this extra cost is vital when deciding if an FHA Kiddie Condo loan is right for you and your child.

Complexities in Personal and Financial Interests

Co-signing an FHA Kiddie Condo Loan intertwines your financial obligations with your child’s. Missed monthly mortgage payments could adversely affect both parties’ credit scores.

Therefore, it’s crucial to have clear communication and understanding with your child about their responsibilities and your expectations about paying the bills. Discuss the potential risks and ensure both parties are committed to fulfilling their financial obligations.

The Need For a Responsible Co-signer

The success of this loan heavily depends on the child’s ability to manage responsibilities.

They need to handle:

  • Making timely payments
  • Timely rent collection from housemates or other tenants
  • Taking care of the property
  • Understanding loan terms

Assessing your child’s readiness for these duties is vital before getting a Kiddie Condo loan.

Impact on Credit Reports

When your child makes the monthly payment on time, it shows they can handle money responsibly. This action will benefit them when they want to get loans or buy a home for themselves in the future.

However, at the same time, it may throw off your credit — even if the mortgage gets paid on time every month.

As with an FHA loan, taking on more debt can temporarily lower your credit score. Lenders might see your Kiddie Condo loan as risky because you owe more money, limiting your ability to obtain conventional loans for additional rental properties.


If you’re like me and constantly wondering how to take advantage of the red-hot real estate market, Kiddie Condo loans can be an appealing option for investors with college-age children. These loans, offered by FHA, allow parents and adult children to co-sign and purchase a property together.

Investors can use the Kiddie Condo loan program to acquire rental properties and benefit from FHA owner-occupied financing. This enables them to generate income through rentals while enjoying the advantages of favorable loan terms.

The bottom line is that Kiddie Condo loans are a great way for real estate investors to diversify and strengthen their investment strategies while providing a home for their child in college. As with any financial decision, thorough research and planning are crucial to leveraging the full potential of this unique financing option.

Kiddie Condo Loans FAQs

Here are the top questions I get about Kiddie Condo loans.

What is an FHA loan?

Put simply, an FHA loan is a type of mortgage that the Federal Housing Administration backs. FHA loans help people who have difficulty qualifying for a traditional mortgage.

Are there any restrictions on the type of property that you can purchase with a Kiddie Condo loan?

While the term “Kiddie Condo” may suggest that only condominiums are eligible, this loan program can purchase various residential properties.

Single-family homes, townhouses, and even certain mobile homes can qualify if they meet FHA guidelines.

Are there tax implications for investors involved in Kiddie Condo Loans?

Yes, there are tax implications for investors involved in kiddie condo loans. When an investor buys a condo under their name and later sells it, capital gains tax may apply since it is not their principal residence.

Additionally, giving a cash gift or interest-free loan to a child to purchase the investment property could have tax liability implications for the parent. Seek guidance from a tax advisor to understand the specific tax implications of kiddie condo loans based on their circumstances.