In a previous article, we discussed how you can acquire a loan to help purchase a home for an elderly parent. We discussed many important points, such as the challenges of purchasing a parent’s house as a “second home” and how you can get approved for the Family Opportunity Mortgage program from Fannie Mae.
This is an important program for many people, so we’d like to go a little deeper into the details. Specifically, we’d like to highlight that fact that you can purchase a home for your elderly parent with as little as 5% down! Compared to the typical requirement of 20% to 30% for second homes, this makes the Family Opportunity Mortgage a stronger option for borrowers all across the country.
This is a significant advantage for adult children who want to use their income to provide a comfortable house for an elderly parent but may not have the savings for a large down payment.
Buying a Home for Your Parent With Only 5% Down
When you use the Family Opportunity Mortgage, you will only be required to bring a down payment of 5% for the loan. With loans for second homes, on the other hand, you may be required to bring as much as 30% of the home’s value before you can make a purchase, which means there is a serious entry-cost to using this option.
The Fannie Mae loan limit for the Family Opportunity Mortgage in San Diego County is currently $649,750, which means you could easily purchase a home worth $600,000. (We’re using a rounded number for simplification.) If the total purchase price is $600,000, and you were to use a second-home loan requiring 25%, you would have to bring $150,000 to the lender before the loan could be written. If the requirement were 30%, which is not uncommon, you’d have to bring $180,000! This means most people would not be able to purchase this home for their parents, as the initial costs would be overwhelming. However, with a Family Opportunity Mortgage, you would only have to bring $30,000. This is clearly a more reasonable and attainable amount for the majority of borrowers.
But what if the house you want to purchase, as well as your income and savings, are more modest? Let’s say you want to purchase a home for your parent that has a selling price of $150,000. With the Family Opportunity Mortgage, the 5% down payment would be only $7,500. A 25% down payment on the same purchase would be $37,500! Clearly there is a distinct advantage, at least in initial costs, to using a Family Opportunity Mortgage.
Why are Down Payments for a Second Home Higher?
The down payment is one of the most important yet misunderstood aspects of mortgage lending. For example, many people assume that home loans require at least a 20% down payment; this is simply not true. However, some down payment is beneficial to you chances of approval. This is true whether you are purchasing a home for yourself or your parent.
But second homes, compared to primary homes, are considered a luxury. They are also considered higher risk because they have a statistically higher chance of default. Think about it, if you were to lose your job, which mortgage would you pay first: the loan on your home, where your family lives, or the loan on your luxury beach house? Most people will do whatever they can to protect the roof over their family’s collective heads; that isn’t entirely true for a vacation home.
For this reason, loans for property classified as second homes will have larger requirements, including higher requirements for a down payment. This is why it’s often better to use the Family Opportunity Mortgage over a loan for a second home.
How to Use a Family Opportunity Mortgage
To use the Family Opportunity Mortgage, you, your parent, and the specific property will need to meet a few requirements. While the parent does not need to be on the title, there should be a reasonable explanation as to why they are not listed; low credit or other financial difficulties could be an acceptable explanation.
These loans are primarily used for single-family homes, but multi-unit properties are also possible. However, there will need to be a clear explanation as to why the parent needs a rental property and how the parent will manage it. Basically, properties with up to four units are possible, and this will be worked out with credit officers to determine the explanation on the multi-unit purchase.
Even if you already have multiple properties under your ownership, you could qualify for this financing. In fact, the program is available to a borrower that has more than 10 financed properties. The reason this is possible is because Family Mortgage Opportunity Loans are considered owner-occupied, regardless of the specifics related to the loan and the title.
If the loan is for multiple borrowers (you and your parent, for example) only one borrower needs to actually live in the home and have title of the property. This is usually the case unless there is a stipulation for guarantors of co-signers.
This type of loan is also available for parents who want to provide comfortable and safe housing for physically handicapped or disabled adult children. To qualify, the child must be unable to work or not have sufficient income to qualify for a mortgage on their own. In this case, the legal guardian will likely be considered the owner-occupant, even if they do not live in the home. This loan program can again be used as a better option than classifying the loan as a second home.
Proudly Offering Advice and Support for Family Opportunity Mortgage Loans
If you want to learn more about Family Opportunity Mortgage program from Fannie Mae, contact the knowledgable team at San Diego Purchase Loans.
We’ll not only show you the details of this popular program, we’ll help you get approved for an affordable loan that improves the life of your elderly parent.
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