If you have an elderly parent or an adult child with a disability, you may be thinking about purchasing a home for them.
By now, you may have already discovered that you could buy it as an investment property, since you don’t plan to live there. But that comes with strict rules and high interest rates.
Fortunately, a program called the Family Opportunity Mortgage lets you buy the home for an elderly parent or an adult child with a disability at “owner-occupied” rates and guidelines even if you don’t plan to live there.
This allows you to place your loved one in a secure home that you own, and at a lower cost.
What's in this Article?
What is the Family Opportunity Mortgage?
The biggest mortgage agency in the U.S., Fannie Mae, has a little-known clause in its rulebook that allows you to buy a home for a loved one as if you will live there.
Under normal lending rules, you must pay higher interest rates and make a significant down payment to buy a home that won’t be your primary residence.
Lending on a “non-owner-occupied” home is a risky venture.
But Fannie Mae recognizes that a home loan for families with a child with a disability or a home loan for elderly parents is different than rental property financing.
That intentional loophole states that you can take advantage of “owner-occupied” guidelines and rates if the person who will occupy the home does not have sufficient income to qualify on their own.
Another benefit: the occupier of the home does not have to be on the loan. That means you may qualify even if the aging parent or adult child with a disability has bad or no credit, or high debts.
Often, an older parent, for example, has unpaid medical expenses that ruined their credit. This is not a concern for this program.
And, if you’d like the occupant to be on the loan, that’s also an option. Just keep in mind that their debt payments will be counted in the total debt-to-income ratio, which may hurt your chances of qualifying.
Comparison of Family Opportunity Mortgage Program vs second home vs investment property
The Family Opportunity Mortgage is a much better value compared to buying the home as a second home or investment property.
|Family Opportunity Mortgage||Second home||Investment property|
|Mortgage rate||Standard owner-occupied rate||Somewhat higher||Much higher|
|Occupancy||Borrower does not have to live in the property||Borrower must live in the property some portion of the year||Borrower does not have to live in the property|
|Required distance from buyer’s primary residence||No distance requirement||50-100 miles||No distance requirement|
How to qualify for the for this loan type
The Family Opportunity Mortgage follows standard owner-occupied guidelines. Generally, you need:
- A 620+ credit score
- Automated Underwriting approval for debt-to-income (DTI)
- Steady employment
- Enough income to support your current housing costs plus the additional expense of owning another home
This last point is important and worth breaking down a bit. The lender will verify that your income can support not only the new home payment but also your existing obligations. With all expenses, your debt-to-income ratio usually needs to be 45% or less, but can be more depending on your Automated Underwriting response.
Here’s an example:
|Your existing home payment including taxes, insurance, HOA||$2,500|
|Existing debts such as car payments, credit card min. payments||$500|
|Payment for the new home including taxes, insurance, HOA||$1,000|
|Total of all payments||$4,000|
In this case, you may qualify because all expenses equal 40% of income, which is below the 45% maximum. But if your income were, say, $8,000 per month, you likely wouldn’t qualify because all expenses would be 50% of your income.
Elderly parent or adult child with a disability must have insufficient income
An important qualification for the Family Opportunity program is that the aging parent or child with a disability must not be able to afford the home on their own.
The elderly parent or handicapped adult child must:
- Be unable to work
- Have insufficient income to qualify
A couple things to note here: The future home occupant may work or receive assistance income. That income just can’t be enough to qualify. Additionally, bad credit is not one of the reasons that you can buy for the loved one. If they have sufficient income but poor credit, you would have to buy the home as a second home or investment property.
To document your loved one’s situation, you will need:
- Proof of relationship, if there’s a question as to whether you’re related, such as when you have a different last name
- Parent’s or adult child’s proof of income, such as pay stubs from employment or disability/Social Security award letter
- Letter of explanation stating that your primary residence will be retained, and that this purchase is for the benefit of the aging parent or adult child with a disability
Advantages of the Family Opportunity Mortgage over assisted living or in-home care
Using a Family Opportunity Mortgage may be more cost-effective than a nursing facility. If the loved one needs care, consider buying a home and setting up in-home care.
Nursing facilities are quite expensive and costs are rising. Surprisingly, buying a home might be more affordable than assisted living. And when you buy the home, at least you’re getting the benefit of appreciation.
Family Opportunity Mortgage lenders 2021
The one drawback to this program is that not many lenders offer it. In fact, you may have already contacted a few and been told no. That’s because not all lenders underwrite loans “by the book” but overlay additional rules to Fannie Mae’s guidelines. Fortunately, the Home.com lender network DOES offer this program. Simply click below and we’ll connect you with a reputable lender that can tell you if you qualify.
Family Opportunity Mortgage FAQ
No. They do not have to be on the loan, which helps if they have bad credit, no credit, or high debts.
You can add them to the loan if you wish. In that case, you would be considered a non-occupant co-borrower. You would qualify with your income and debts, plus the income and debts of the elderly parent or child with a disability.
Yes. With this program, you as the family member can buy an additional home for an elderly parent or adult child with a disability without living in that property. You are free to continue living at your current residence.
No. You may only purchase a home for a legal son/daughter or son-in-law or daughter-in-law.
You could, but you’ll be subject to higher down payment requirements, higher mortgage rates, and the property will have to be 50-100 miles away from your primary residence. You may not want to be that far away from a loved one who may need assistance.
Yes. However, your parents must not have sufficient income to qualify on their own. If they do, they can apply for the loan themselves under standard owner-occupied guidelines. If the loan is under your name, it would be classified as an investment property and be subject to stricter rules.
Yes. You can buy a home together and both be on the loan. If you don’t plan to live in the home, you are considered a non-occupant co-borrower. The loan may be subject to slightly more strict requirements. If your elderly parent does not have the income to qualify for the loan, but you can afford it by yourself, the Family Opportunity Mortgage might be the better option. That way you can access the same guidelines as if the home were going to be your primary residence.
Get started with the Family Opportunity Mortgage
Thanks to a little-known rule, Fannie Mae has opened up opportunities for children to help elderly parents and parents to help children with a disability.
Costs are low compared to buying the home under standard rules. This program is a great way to provide for a family member who deserves a stable place to live.
Debt-to-income (DTI) ratio is monthly debt/expenses divided by gross monthly income.
Some references sourced within this article have not been prepared by Fairway and are distributed for educational purposes only. The information is not guaranteed to be accurate and may not entirely represent the opinions of Fairway.