Q: I have two sons – one is 17 and one is 21. My 21 year-old son is in college at the University of Georgia in Athens.
At the beginning of his sophomore year, we bought a small, new, three-bedroom house for $105,000. He and two of his buddies are living in the house, and the two friends pay rent. As we already own a home in a suburb of Atlanta, the Athens house is considered an investment property. We therefore have a very high interest loan.
My 17 year-old will be going to school in Athens in another year and will begin living in this house. This son was injured in an accident several years ago and has $45,000 in the bank from the settlement.
Would it be a wise investment for my younger son to buy the house for what we paid for it, put a large portion of the $40,000 into the home, and get a lower interest rate? My husband thinks he would not qualify for a loan at all since he will be a student but I think if we co-signed, he would be approved.
He would receive approximately 80 percent of his house payment as rent from the other two renters and we would pay his portion of the rent. The neighborhood continues to appreciate and the house is maintenance free.
A: I like the idea that you’ve bought a house to lower the costs of sending your children to college. It appears your investment will really pay off when your second son enters school.
Your son could buy the home from you once he turns 18, but as you note, he’ll still be an unemployed student. If you co-sign the loan for him, he should be able to qualify, especially since the renters are already in place.
But there are some other options to consider. Since your primary residence is more than an hour away, the home you purchased (that your son lives in) could be considered a second home for you. Many lenders will give you the same rate on a second home that they give on a primary residence. This should lower your costs considerably.
What may also help is to refinance your loan with a 5-year adjustable rate mortgage (ARM). The loan, which carries a much lower rate than a conventional 30-year mortgage, comes due when your second son will graduate.
Next, I don’t know what is the relationship between you and your sons, or between your boys, but by allowing your second son to “cash in” on a great investment, you may be setting up some long-term resentment that will get in between these brothers.
Clearly, no amount of money is worth destroying a brotherly bond. So you might simply invest your younger son’s windfall for long-term appreciation (just in case there are extraordinary medical costs from his injury — or for a future down payment on a home of his own), and retain ownership of the property.