When purchasing a home, the most favorable terms and interest rates are often limited to owner-occupied homes because lenders see a lower risk when the home is the borrower’s place of residence. But what if you are looking to purchase a home for elderly parents or an adult child? If you are not the primary resident, are you limited to higher rates common with an investment property?
While not technically a specific loan program, Fannie Mae has a clause in their guidelines, known as the Family Opportunity Mortgage, that allow you to buy a home for a loved one with the same benefits as an owner-occupied property, as long as you meet the specific guidelines.
- The family opportunity mortgage is not really a specific mortgage but rather a clause in Fannie Mae’s guidelines that allow borrowers to purchase a second home for a loved one without having to meet the higher down payments and increased interest rates seen with mortgages on non-owner-occupied properties.
- While every family opportunity mortgage requires the same basic qualification factors, additional information is required based on whether you are purchasing the home for elderly parents, an adult child attending college, or a disabled adult child.
What is a family opportunity mortgage?
Under normal loan terms, buying a second home that will not be your primary residence requires a larger down payment and higher interest rates. However, when you are purchasing a home for elderly parents or an adult child, Fannie Mae, and Freddie Mac, recognize that this purchase is not the same as a rental property or vacation home and has made adjustments in their guidelines, making this type of home purchase similar to a standard conventional loan. This means with a family opportunity mortgage, you can take advantage of the standard owner-occupied guidelines, even though you will not be living in the residence.
How does it work?
A mortgage under the family opportunity mortgage works the same as a standard conventional mortgage through Fannie Mae. The only difference is you will need to meet specific requirements based on the specific family member you are purchasing the home for. This program allows borrowers to purchase a home for elderly parents, adult children attending college, and disabled adult children. We take a closer look at the eligibility and qualifications below for each home purchase scenario.
Benefits of family opportunity mortgage
Taking advantage of the family opportunity mortgage offers borrowers many benefits over a traditional second-home mortgage. These include:
- Reduced down payment
- Lower interest rates
- No occupancy requirements
- No distance requirements, unless the home is for adult college students
Eligibility and qualifications
Applying for a family opportunity mortgage is similar to a conventional loan and borrowers must meet the general Fannie Mae conventional loan qualifying factors which include:
- A credit score of at least 620
- Minimum of 5% down payment requirement
- A debt-to-income ratio of 45%, though some may qualify with as much as 50%
- Proof of steady employment and the ability to afford the new housing monthly payments along with your existing costs
In addition to meeting the loan qualification guidelines, the home you choose for purchase must also meet specific guidelines. Chosen properties must not be a timeshare or other type of investment property, must be a single-unit dwelling that is suitable for living year-round, and the borrower must be the person in control of the property and cannot allow a management firm to take over.
These basic factors are required for any type of family opportunity mortgage. Additional qualifications are necessary depending on who the intended home is being purchased for.
Qualifications for elderly parents
If you are looking to purchase a home for your elderly parents, you will need to be able to document your parent’s situation. This begins with a proof of relationship, showing that, even with a different last name, for example, you are directly related to your elderly parents. In addition, elderly parents must be unable to work or, if they are working, have insufficient income to qualify for a home loan. You will also need to provide proof of their income, either from work or from social security income. You will also be required to provide a letter or explanation that goes over your intent to purchase a home for your financially limited elderly parents and that they will reside in the home.
When purchasing a home for elderly parents, there is no requirement on location or distance between the home you already own and the home you are buying for your parent.
Qualifications for college kids
The family opportunity mortgage also allows for the purchase of a home for college-bound students. While, as a borrower, you are required to meet the main guidelines covered above, buying a home for a college-bound student has additional requirements in place. These requirements include:
- The adult child must be enrolled in college
- The property must be located close to the college, as well as a reasonable distance from your home
- The college student must occupy the home for at least one year
Qualifications for disabled family persons
The family opportunity mortgage program is also available to parents looking to purchase a home for their disabled adult child. Qualifications for this loan option are similar to those for elderly parents.
To begin, you must have documentation from the child’s physician that documents the specific disability. The disabled adult child must not work or have an income that is too low to qualify for a traditional mortgage. Proof of income for the child is required. You, as the borrower, will be required to show proof of your relationship as well as a letter of explanation that shows the intent of the purchase is to provide an independent home for your adult child.
Alternatives to family opportunity mortgage
While the family opportunity mortgage provides a great option for many borrowers, it is not the only option when it comes to supporting your elderly parents or adult children. Alternatives to the family opportunity mortgage can include:
- A reverse mortgage: For elderly parents looking to maintain their current home, a reverse mortgage allows them to take advantage of their home equity and receive a lump sum of funds or funds spread out over many years. This allows your elderly parents to retain their home while still providing financial security.
- Choose an assisted living facility: Instead of purchasing a home for elderly parents or disabled adult children, residence in an assisted living facility is also an option. This can be beneficial when parents or disabled children may require assistance in daily living. However, there must be sufficient income and/or assets to maintain the monthly costs of these facilities, which average $4,500 a month in the United States.
- Become a co-signer: If your elderly parents or disabled child have regular income from employment or benefits, you can consider becoming a co-signer or co-borrower for a mortgage, either to purchase a home or refinance an existing home. Co-signing does not require you to become a resident of the home purchased but rather provides financial security to the mortgage.
The family opportunity mortgage can help you support your family
Whether you are looking to secure a home for your aging parents, help your college student secure housing close to campus, or give a sense of independence to your disabled adult child, the family opportunity mortgage offers the perfect solution. By meeting the specific guidelines, you can purchase a second home for your family member without having to pay the higher down payment and increased interest rate standard with a mortgage on a second property.
We can help you find the right solution
At Hero Home Programs, we understand how the home-buying process can be frustrating and confusing. This becomes even more true when you are trying to help secure a home for your family member. Our team works with you to ensure you are receiving the best possible mortgage loan options for you and your family member. To learn more, schedule a consultation today.