Lenders give the best mortgage interest rates and terms on “owner occupied” home purchase loans. “Owner occupied” simply means that the people buying the home plan to live in it.
But there is a situation in which lending rule maker Fannie Mae allows you to buy a home as an owner occupied residence, even though you don’t plan to live in it.
This exception is when you are buying a home for elderly parents. This loan option is sometimes referred to as the Family Opportunity Mortgage.
According to Fannie Mae, a child may provide housing for an elderly parent “if the parent is unable to work or does not have sufficient income to qualify for a mortgage on his or her own.”
Additionally, the parents do not have to be on the loan.
This means that as a child of aging parents, you can supply housing for them and obtain the same rates, fees, and lending flexibility as if you were buying your own home to live in. Again, you don’t have to live in the home you buy with your parents to get these special accomodations. Your parent or parents can live there and you can remain in your current living situation.
If not for this allowance by Fannie Mae, children buying a home for elderly parents would need to buy the property as a second home or investment property.
Second homes generally need to be 50-100 miles away from your current primary residence – not exactly convenient or safe if your parents need regular care.
And investment properties require a 20-30% down payment, harder qualification criteria, and significantly higher mortgage interest rates.
The relaxed guidelines around buying an elderly parent a home could mean the difference between being able to afford it or not.
For instance, because the purchase is considered owner occupied, the buyer can put as little as 5% down on the home by obtaining a mortgage insurance policy. This reduced down payment requirement can lower the initial cost required by at least $30,000 on a $200,000 home purchase.
Not only that, but classifying the home as an investment property instead of an owner occupied one will raise the rate by about 0.50%, or $45 per month on a $150,000 mortgage.
With assisted living costs skyrocketing, purchasing a home for elderly parents can be very cost effective. Contact one of our lending professionals for a monthly payment quote. You may find that the mortgage payment is a fraction of the cost of a nursing home or assisted living facility.
Even purchasing a home and combining it with in-home nursing visits may be more affordable than a nursing home.
To qualify for the loan, you’ll need to meet the general Fannie Mae conventional loan guidelines, and you may have to supply a few additional items, such as:
- Proof of relationship to parent if it’s not obvious, for instance if you have a different last name than your parent
- Parent’s pay stubs, if any
- Parent’s Social Security award letter (to prove your parents can’t afford the mortgage on their own).
If it appears you qualify to buy a home for your parents as an owner occupied residence, contact one of our lending professionals for a free mortgage rate quote. We’d love to help you get your parents into a great home.
Tim Lucas (NMLS #118763), Contributor/Editor
Tim Lucas is a mortgage writer with over 11 years of experience as a loan originator, processor, and team manager. Get a live rate quote for your home purchase or refinance at MyMortgageInsider. Visit Tim on Google+, Twitter, and Facebook.