A family opportunity mortgage is a loan for a residential property bought for a parent or an adult disabled child who could not qualify for financing on their own.
Under Fannie Mae guidelines, a principal residence can be purchased for a child or parent who is unable to work or who does not have sufficient income to qualify for a mortgage. The buyer will be considered the owner-occupant even though they will not live in the house.
This article will explain family opportunity mortgage guidelines and rules, how to find lenders, and more.
What Is a Family Opportunity Mortgage?
What was a formally titled program under Fannie Mae is now a conventional loan with expanded guidelines to allow owner-occupied financing under special circumstances.
A family opportunity mortgage may be used:
• When parents or legal guardians of a disabled adult child want to provide housing for the child.
• When children want to provide housing for parents who cannot qualify for a mortgage because they cannot work or their income is too low.
Buyers are able to obtain financing at the same interest rates and terms as a principal residence under these circumstances. They do not have to use second home or investment property requirements.
First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.
Recommended: How to Buy a Single-Family Home
How a Family Opportunity Mortgage Works
A family opportunity mortgage works just as a conventional mortgage for your primary residence does. Buyers must meet Fannie Mae’s eligibility and underwriting standards in order to qualify for the loan.
Lenders consider your debt-to-income ratio, monthly debts as a percentage of your gross monthly income. Fannie Mae guidelines call for a maximum 45% DTI, or 50% with certain compensating factors.
Your income, though, must be high enough to cover the home mortgage loan for your primary residence and the residence you want to buy for your parent or dependent child. A credit score of at least 620 and steady employment will be required to qualify for the new mortgage as well.
Example of a Family Opportunity Mortgage
Here’s an example where you could use the family opportunity mortgage. Let’s say you have elderly parents who need more care, and you would like for them to move near you. Their retirement income isn’t enough to qualify for a mortgage in your area.
If you have enough income and a decent credit score, you may be able to buy a house for them. This is where a family opportunity mortgage may make sense.
You’ll turn to your lender to qualify you for owner financing. The family opportunity mortgage is actually a term that is no longer in use, but the ability to qualify for an owner-occupied mortgage for a disabled adult child or elderly parent following Fannie Mae guidelines is the same.
The lender can help you explore different types of mortgages that will meet Fannie Mae’s criteria.
One basic choice is a fixed-rate loan or adjustable-rate mortgage.
After settling on a mortgage product, you’ll submit all the necessary documents through your lender to apply for the mortgage.
After the loan closes, your parents will move into the house, and you’ll make the mortgage payments in your name.
Keep in mind the mortgage and the deed will be in your name unless you add your parents to the deed. There are advantages and disadvantages to structuring it this way, so be sure to do some research or consult a lawyer.
Recommended: Home Loan Help Center
Steps to Qualify for a Family Opportunity Mortgage
If you want to qualify for a family opportunity mortgage, you’ll need to take the following steps:
• Complete a mortgage application with your lender. You’ll need to add the amount of the additional mortgage to the one you have on your principal residence (if any) and still have enough income to qualify for financing. Take a look at this mortgage calculator tool if you want help coming up with an estimate.
• Obtain pre-approval. By providing a specific tentative amount, mortgage pre-approval allows you to look for homes that fall within your budget.
• Find a suitable property. The property does not have distance rules; nor do you have to reside in the property to qualify for owner-occupied financing. The types of houses may be restricted to single-family homes, but it may also be up to your lender.
• Provide your lender with all necessary documentation. This may include proof of the adult child’s disability or proof that a parent is unable to take on a mortgage.
• Close on the loan. Sign all the paperwork, wire your down payment and closing costs to the appropriate entity, and take care of any final details.
A family opportunity loan is usually treated like conventional financing for an owner-occupied home. Some lenders may have stricter lending standards when it comes to the definition of an owner-occupied residence.
Advantages of a Family Opportunity Mortgage
Being able to provide housing for a loved one with owner-occupied financing comes with some advantages:
• Lower down payment requirement. With an owner-occupied house, buyers can obtain a conventional mortgage with as little as 3% down (0% if they qualify for a USDA or VA loan). If the property is bought as a second home or investment, the down payment requirement is usually 10% or more. For a family opportunity mortgage, the minimum down payment is 5%.
• Interest rates are lower. Loan rates for second homes or investment properties run higher than owner-occupied residential mortgage rates.
• Lower property taxes. When a property is classified as owner-occupied by your local taxing authority, you may qualify for an exemption that reduces property taxes owed.
• Mortgage interest and property tax is tax deductible. When you file your taxes, you may be able to claim the mortgage interest and property tax dedication for both properties.
• Borrowers are not required to occupy the property. With a family opportunity mortgage, you are not required to live on the property to qualify for owner-occupied financing.
Recommended: Shopping for a Mortgage
Which Lenders Offer Family Opportunity Mortgages?
Since the official program with the name “Family Opportunity Mortgage” has been discontinued, you won’t be looking for a lender that offers this program. Instead, you’ll be looking for a lender that allows you to use Fannie Mae’s definition of an owner-occupant when buying a house for a parent or disabled adult child. Many lenders will offer this as it is a common conventional loan.
Tax Implications of a Family Opportunity Mortgage
The tax implications of owning a home with a type of family opportunity mortgage may be complex. It’s a good idea to consult a tax attorney or tax accountant for advice.
Buying a home for a disabled adult child or an aging parent is possible if you meet Fannie Mae guidelines and have sufficient income. If you’re looking for the family opportunity mortgage, ask lenders if they allow owner-occupied conventional financing if you purchase a home for parents or a disabled adult child. You’ll save money while providing housing to a vulnerable adult.
3 Home Loan Tips
- To see a house in person, particularly in a tight or expensive market, you may need to show proof of pre-qualification to the real estate agent. With SoFi’s online application, it can take just minutes to view your rates.
- Not to be confused with pre-qualification, pre-approval involves a longer application, documentation, and hard credit pulls. Ideally, you want to keep your applications for pre-approval to within the same 14- to 45-day period, since many hard credit pulls outside the given time period can adversely affect your credit score, which in turn affects the mortgage terms you’ll be offered.
- Generally, the lower your debt-to-income ratio, the better loan terms you’ll be offered. One way to improve your ratio is to increase your income (hello, side hustle!). Another way is to consolidate your debt and lower your monthly debt payments.
Has the Family Opportunity Mortgage program been discontinued?
The formal name “Family Opportunity Mortgage” has been discontinued, but Fannie Mae still allows conventional mortgages to be considered owner-occupied for disabled adult children and parents who cannot qualify for mortgages on their own.
Can I buy a home for someone who is not my family member?
You can buy a single-family home for someone who is not a family member, but the circumstances do not meet Fannie Mae family opportunity mortgage guidelines and will not qualify for owner-occupied financing.
Photo credit: iStock/Ridofranz
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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.