How To Buy a House for a Family Member with the Family Opportunity Mortgage
For a variety of reasons, many Americans want to purchase a home for a family member. Typically, someone wants to buy a house for an elderly parent who doesn’t have the means to fund a mortgage payment on their own. It’s also common for parents of disabled adult children to purchase comfortable, livable housing for their son or daughter.
Typically, these types of purchases would need to be financed as an investment property. But, across the board, investment properties have higher risk to lenders, as investors are more likely (statistically speaking) to default on a loan.
Think about it: an investor has virtually no emotional connection to a rental property; if they experience an economic downturn, they may let the mortgage on an investment go into default. It’s a simple dollars-and-cents issue. Because of this fact, investment loans have strict requirements that help protect the lenders.
But if you are purchasing a home for a loved one, such as an elderly parent or disabled child, you are not just purchasing an investment; you are creating a living gift that improves the life of someone you care about. If you experience an economic issue, you would scratch, claw, and fight to keep the property; after all, it’s far more than an investment holding.
Therefore, people purchasing homes for loved ones should not be held to the same requirements as everyday investors.
This is where the Family Opportunity Mortgage comes in!
Family Opportunity Mortgage: A Wonderful Resource for Caring Families
The Family Opportunity Mortgage is a program created by Fannie Mae that allows you to purchase a home for a parent or disabled child if that person is unable to qualify themselves.
This program has allowed people to purchase a home for their parents or children for years. Purchasing as a non-occupant co-borrower, you are essentially co-signing for the parent or child and qualifying for the loan together. In this program, all parties are on the loan and all people are listed on the title. This new structure allows you (the non-occupant co-borrower) to qualify entirely for the property, so the occupying child or parent does not have to contribute to the loan qualification. They do not need to bring anything for the downpayment or income requirements to qualify. Because of this structure, many use the program to purchase a home for child who is heading to college, helping to avoid the expensive cost of student housing.
Family Opportunity Mortgage: Highlights and Capabilities
To be fair, many mortgages could be used to purchase a home for a family member. So why choose the Family Opportunity Mortgage? There are lots of details involved in this program, but it really comes down to two issues: the requirements for the downpayment and the debt-to-income ratio.
Using the Family Opportunity Mortgage, you can purchase a home for a family member with only 5% down up to the conforming high balance loan limits. 5% can, in many purchases, represent a large number; it’s $5,000 for every $100,000 in purchase price. But this is far less than many other loan types, especially loans for non-occupant borrowers.
The other factor that makes this a good options is the maximum allowed debt-to-income ratio. Using these loans, you can purchase a home for a loved one if you have a maximum debt-to-income ratio of 50%. Debt-to-income ratio is an important calculation used by lenders and lending agents. Basically, it is a statement of your monthly debt payments compared to your monthly income. It does not take into account total debts, merely how much you pay every month, and it’s used as one of the main qualifying factors for loan applications. Allowing a 50% ratio is very lenient, making this type of loan a viable option for borrowers all across the country.
Buying a Home for a Parent Using the Family Opportunity Mortgage
Among the many uses of the Family Opportunity Mortgage, it is often used to purchase a home for a parent who is not longer able to support themselves financially.
The process is usually quite simple. If the parent has been claimed on your tax returns, no other documentation regarding the nature of your relationship is required, and you will be able to purchase a home for your parents without listing them on the loan or the title. However, if your relationship to the parent is not obvious, for example, if you have different last names, you may need to provide further information.
If the parent has not been claimed on your tax returns, you can still purchase a home for them without putting their name on the loan or title. You will likely need to provide more information, such as proof of relationship, parent’s pay stubs (if they have any), and possibly the parent’s Social Security award letter or tax returns.
You can do so using loan terms generally put towards owner-occupant financing.
Buying a Home for a Child Using the Family Opportunity Mortgage
Purchasing a home for an adult child is a bit more restrictive than the process for a parent. You can purchase a home for a child without putting the child’s name on the title or loan, and you can do so while still getting the generous loan terms that you would see from owner-occupant financing.
In many cases, this program is used to purchase housing for a disabled or handicapped adult child. With this situation, you will have to demonstrate that the child is unable to work or does not have sufficient income to qualify for a mortgage on their own. In this situation, the parent or legal guardian making the purchase is considered the owner-occupant.
Guidance and Support for All your Family’s Home Purchases
If you are interested in using the highly beneficial Family Opportunity Mortgage, contact our staff today. We have the experience and knowledge to help you take advantage of this option, ensuring you get the right financing for your specific needs.