By Vanessa Saunders, MBA, MIMC, Broker Owner, Global Property Systems Real Estate.
As more and more Baby Boomers age, many are turning to assisted living to see them through their “golden years.” But the costs of eldercare programs and nursing homes are skyrocketing. In many cases, it may actually be more cost-effective for children of elderly parents to buy them a house instead of putting them in a nursing home. Even in conjunction with in-home nursing visits, it can be more affordable (not to mention more comfortable) for them to live in a conventional house than a nursing home. For that reason, some children of elderly parents are considering buying them a house instead.
Until recently, the problem with this solution is that because the children financing the home aren’t owner-occupiers, they would need to buy the property as a second home or an investment property in order to secure a mortgage. Inconveniently, to qualify, second homes need to be 50 to 100 miles away from the buyer’s current home – not ideal for parents needing regular care and frequent visits. Qualifying investment property loans require a 20% -30% down payment, have harder qualification requirements and pay significantly higher mortgage interest rates.
But a program offered by Fannie Mae allows children an affordable way to give back to elderly parents and have an investment opportunity as well. The Family Opportunity Mortgage Program announced in late 2018 allows children to purchase a property for their parents if they cannot qualify on their own credit. It means that a child of aging parents can supply housing for them and obtain the same interest rates, fees and mortgage flexibility as if they were buying their own home to live in.
There are several advantages for the children. For instance, because the purchase is deemed to be owner-occupied, the buyer can put as little as 5% down on the home by obtaining a mortgage insurance policy. This reduced down payment would lower the initial cost of the home by at least $30,000 on a $200,000 home purchase.
Interest rates are better too. A home classified as an owner-occupied one instead of an investment property one will pay about a half percent less interest. On a $150,000 mortgage, it saves about $45 per month.
To qualify for the program, borrowers would have to meet Fannie Mae’s conventional loan requirements. Borrowers would also have to prove their relationship to the parent if it’s not obvious, for example, if they had a different last name. If the parents still worked, borrowers would have to provide proof of employment with pay stubs, if any. If the parents are retired and on Social Security, they would need to show their Social Security award letter to prove they can afford the mortgage payments on their own.
If you are interested in buying a home for your parents as an owner-occupied residence or would like more information, contact Barry Goldenberg of Luxury Mortgage for more information on this mortgage financing program. Call direct at (516) 393-4470, or call or text his mobile line at (516) 398-9511.
