Lenders provide the best mortgage interest rates and terms on home-buying loans when the homes are already occupied by owners. “Owner occupied owner” simply means the people who buy the home plan to live in it.
But there’s a situation where lending rule maker Fannie Mae allows you to buy a home as a residence occupied by the owner, even if you don’t plan to live in it.
The exception is when you purchase for an elderly parent. Sometimes, this loan option is called the Family Opportunity Mortgage.
According to Fannie Mae, a child may provide housing for an older parent if the parent is unable to work or has insufficient income to qualify for his or her own mortgage.
The parents do not have to be on the loan, in addition.
This means you can provide housing for them as a child of elderly parents and get the same rates, payments, and flexibility in financing as if you were buying your own house to stay in. Again, to get those special accommodations, you don’t have to live in the home that you buy. Your parent or parents can live there, and you can stay in your present state of housing.
If not for Fannie Mae’s allowance, children buying a home for the elderly parent would have to purchase the property as a second home or investment property.
In general, second homes need to be 50-100 miles away from your current primary residence — not exactly convenient or safe when your parents need regular care.
And investment properties require a 20-30 percent down payment, stricter qualifying requirements, and higher interest rates on mortgages.
The relaxed guidelines about purchasing a home from an elderly parent could mean the difference between being able to afford it or not.
For example, because the purchase is considered owner occupied, by obtaining a mortgage insurance policy the buyer can put as little as 5 percent down on the home. This reduced down payment requirement on a home purchase of $200,000 can lower the initial cost required by at least $30,000.
Not only that, but classifying the home as an investment property rather than owner occupied would increase the interest on a $150,000 mortgage by around 0.50 percent, or $45 a month.
With assisted living rates skyrocketing, it can be very cost effective to purchase a house for elderly parents. Contact one of our lending experts to get a monthly quote for payment. You can consider the mortgage payment to be a fraction of a nursing home or assisted living facility’s cost.
It may even be more affordable to buy a home and combine it with in-home nursing visits than a nursing home.
You will need to comply with the general Fannie Mae conventional loan guidelines to qualify for the loan, and you might need to supply a few additional items, such as:
- Proof of parental relationship if it is not obvious, for example if you have a different last name than your parent
- Possible parent’s pay stubs
- Award letter from the Parent’s Social Security (to show that the parents can not afford the mortgage on their own)