A Family Opportunity Mortgage is a home loan that allows you to purchase a property for an aging parent, college age child, or disabled adult child who might not qualify for a mortgage on their own. Because lenders consider this an owner occupied mortgage, you can benefit from less stringent underwriting, a lower down payment and fewer occupancy restrictions than a second mortgage while ensuring your family member has somewhere safe to live.
What Is the Family Opportunity Mortgage
As your parents enter the retirement stage, they might have trouble qualifying for a mortgage on their own. The same can apply to a college-age or disabled child. If you want to help a relative qualify for a mortgage, you might consider a Family Opportunity Mortgage. You can also explore using a Family Opportunity Mortgage to refinance a property or to change an existing home to make it more accessible for the person who will live there full time.
Usually, when you apply for a second mortgage, lenders charge higher interest rates and require a higher credit score and down payment. Because lenders consider a Family Opportunity Mortgage an owner-occupied home loan, you can benefit from the terms of a mortgage for a primary residence.
Who Is It for and How to Qualify
Lenders have a strict set of guidelines outlining who can apply for a Family Opportunity Mortgage. The loan must be for an aging relative, a child in college, or disabled adult child who needs housing but can’t qualify for a mortgage alone. Specifically:
- Parents who are over the age of 62 and don’t work or can’t qualify for a mortgage.
- Disabled adult children with no income or low earnings, and you, as their parent, want to buy a home for them.
- College-aged children who enroll in college full time and the home being financed is within 100-miles of the college.
- The relative you are buying the home for must live in the house as their primary residence and don’t make a sufficient income to apply for a home loan on their own.
- The property you purchase must be a single-family home.
A lender won’t just take your word for it you are a relative of the resident of the house. For instance, you might have a different last name than your parent or adult child. Here, you can show a legal document like a marriage certificate with a name change or a birth certificate that shows your last name differs from your child. Your lender can give you a list of accepted documents after they look at the specifics of your loan.
For your parent or adult child, you will also need to provide pay stubs for income they earn or award statements from social security payments. For a disabled adult child, the lender might require a physician’s statement to confirm disability status. In all cases, the family member cannot own any other real estate or investment properties. Sometimes, the lender might require they haven’t owned a property within the last 3-5 years.
What Are the Lending Guidelines
Many lenders offer conventional Family Opportunity Mortgages. As the borrower, while you are benefiting from mortgage rates and a lower down payment similar to a conventional loan on a primary residence, you still need to qualify for the loan. The lender will look at your credit score, income, debt to income ratio, and several other factors. Most lenders provide loans federally backed by Freddie Mac or Fannie Mae and will use those requirements. They include:
- A minimum credit score of 620.
- A maximum DTI of 45%, meaning your monthly debt payments should account for less than 45% of your monthly income.
- Proof of employment and income that support you taking on another mortgage payment.
In addition, the occupant of the home cannot qualify for the home on their own and you must be able to prove their relationship to you, their income and disability status, if applicable. Lenders also have specific qualifications they will provide to you when applying.
To compare, a conventional loan for a second home or investment property requires a minimum credit score of 680 or higher, depending on your down payment.
You will also benefit from a lower mortgage interest rate and a lower down payment. A Family Opportunity Mortgage can have a down payment as low as 5%, but for a second home loan some lenders require 20% or more.
Family Opportunity Mortgage Alternatives
A Family Opportunity Mortgage might not be the right fit for your family. Maybe your relative has an income that disqualifies them from the program, or maybe you don’t want to take on another mortgage in your name. Things to consider with a Family Opportunity Mortgage are that the new loan will impact your credit score, impact your DTI, and you are responsible for the payments, even if your family member is supposed to pay.
As an alternative to a Family Opportunity Mortgage, you can consider:
- Helping the family member make monthly rent payments.
- A reverse mortgage for an older parent.
- Co-sign on a mortgage for your relative.
- Assisted living facilities for your parents or disabled child.
If you have a family member that you want to help with housing and meet the qualifications, a Family Opportunity Mortgage might be worth exploring. Remember, though, that it will impact your credit and you are taking on a new financial responsibility. Before applying for a mortgage, it is always best to explore different lenders and their requirements before deciding.