Typically those who buy a home can only take advantage of the best interest rates and mortgage terms if it is an “owner-occupied” property, meaning they plan to live in it.
But that’s a real barrier to anyone wanting to buy a home for someone else who can’t afford one like when a parent buys a home for an adult disabled child.
Fortunately, there are programs and strategies to bring home ownership into reach for people with disabilities.
Fannie Mae’s Definition of “Owner Occupied”
Most people don’t realize that Fannie Mae offers a loophole to its “owner-occupied” definition. Sometimes this program is known as the Family Opportunity Mortgage. With this program, Fannie Mae considers the following situation the same as if the buyer were planning to live in the home:
“Parents wanting to provide housing for their physically handicapped or developmentally disabled adult child” is permissible “if the child is unable to work or does not have sufficient income to qualify for a mortgage on his or her own, the parent is considered the owner/occupant.”
This applies even if the family member doesn’t plan to live with their disabled son or daughter. This is available even if the borrower is already a homeowner with an owner-occupied loan on their primary residence. The program enables a parent or caregiver to provide financial assistance to children who couldn’t purchase a home on their own.
Guidelines With Individual Lenders
Individual lenders may set more strict eligibility guidelines than what Fannie Mae allows; still, many will accept Fannie’s alternative definition of an owner-occupied residence.
That means the lowest interest rates available and a fairly easy qualification process for qualifying borrowers.
In many ways, buying a home for a disabled child can be more affordable housing than a nursing home or even renting an apartment for the child.
In essence, it means that the big expense and generosity of the parents are rewarded with somewhat lower costs. This improves the accessibility of mortgages for parents looking to buy a home for the disabled child or not, particularly for low-income families.
For instance, a parent may only have a 5% down payment available. When buying an investment property, a 20-30% down payment is typically required. But with an owner-occupied conventional loan, the home buyer can often put down 5% by obtaining a mortgage insurance policy.
Ready to apply? Here’s how
The purchase loan will require typical Fannie Mae rules, such as providing income and asset verification documents. Also, the parents will have to qualify for the new house payment by adding their own housing costs and other monthly costs to their debt-to-income ratio.
What documents will I need?
Besides standard qualification items, here are some additional items parents will need when applying for this type of loan:
- Proof of their child’s permanent disability
- Paystubs from the child’s workplace, if any, and documentation from social security payments (SSI), social security disability insurance (SSDI) or other disability benefits, proving the child can’t qualify for the home themselves.
Why Fannie Mae Makes Exceptions
So why does Fannie Mae allow this loophole? It all comes down to risk. Non-owner-occupied homes, also known as rental homes and investment properties, are considered higher risk. Owners of those types of properties will default on the loan before defaulting on their own primary home loan.
Fannie Mae assumes that parents are not very likely to default on repayment for a disabled child’s residence. The federal government allows for some flexibility to meet the financial needs of parents with special needs children.
This is good news for any parent considering buying a home for a handicapped or disabled adult child. With the extra work and dedication required to be a parent of a disabled child, it’s good to know that there are assistance programs to help people make independent living a reality.