If you are thinking about buying a home with your parents or other family member, you should know you aren’t alone.
Buying a home with a family member besides your spouse can be a fantastic option to support your family and to ease caregiving responsibilities. And it can make it more affordable to buy a home because you have a lower interest rate and down payment. And qualifying for the purchase money loan may be easier.
Fannie Mae Offers a Second Home Mortgage Program with Easy Requirements If Your Parents Reside in the Home
It also can make buying a home more complex, but there are programs available, such as the Fannie Mae 2nd Home Loan program. Below is information about this program and buying a home with a family member.
More Multigenerational Homes Today
As homes continue to get more expensive in 2023, multigenerational living is more popular. Living with extended family is more common today than in decades.
Real estate experts say there is a lack of home inventory and great demand for homes after the pandemic. So, with prices this high, some buyers simply need to combine resources with other family to afford a home.
One of the more popular options is buying a home as co-borrowers using the Fannie Mae 2nd Home Loan program. It also is often called the Family Opportunity Mortgage.
Fannie Mae says a child can get a loan for a home for a parent if they cannot work or doesn’t have enough income to get a mortgage. The parents can live in the child’s home or in their own. And the parents don’t even have to be on the loan.
This means if you have aging parents, you can get a house for them and get the same second home mortgage rates, lending flexibility, and fees as if you were getting your own home.
If it weren’t for this great Fannie Mae program, you would probably need to purchase the property as a second home, and that requires a higher interest rate and down payment. The Fannie Mae down-payment requirements have always been easier than traditional banks as the program requires 3 to 10% in most cases.
The more generous guidelines for buying a home for your parents can make the difference between affording it and not.
Example Of Family Opportunity Mortgage
For instance, because buying the home is considered a primary residence, you can put down as little as 5% if you get mortgage insurance. The lower down payment can save you as much as $30,000 if you buy a $200,000 home.
Plus, if the home were considered an investment property, it would raise your rate by about .5%, which is $50 per month if the mortgage is $150,000.
Because assisted living costs have gotten so expensive, buying a home for your older parents can be a cost-effective way to maintain their standard of living. You could easily spend $5,000 per month for nursing home expenses for your parents, so getting them a home with this program is a win-win.
Another benefit is the DTI standards for getting this loan are quite reasonable. Many lenders want to see DTIs for regular mortgages to be 25% or 30%, but you can have ratios as high as 50% for this program.
Also, you can use your income and that of your parents to qualify. And because of this, you may be able to afford a better home for your parents that makes their lives more enjoyable and easier as they age.
Some of the standards to qualify for this special Fannie Mae loan include:
- Proving you are related to your parents if it isn’t obvious by your last names
- Pay stubs of your parents if they work
- Social security award letter that shows parents cannot afford a mortgage
- You also need to have a 620 or higher credit score and steady employment
- Enough income to support your mortgage and that of your parents
Considerations for 2nd Home Loans
One downside to this Fannie Mae program is not many mortgage companies offer it. You may have called a few and been told they don’t have it. This is because not every lender underwrites home loans according to the rules but may have their own overlays. But if you shop around enough, you should be able to find a lender that offers the Family Opportunity Mortgage.
Also note that you only can use this program for people who are legally related to you; it isn’t enough to say a person is like a father or mother to you.
The Family Opportunity Mortgage offered by Fannie Mae is a fantastic option if you need to get your parents a home but have a limited budget. Taking care of your aging parents is one of the challenges as you get older, so being able to get them in a home you can afford can make your life so much easier. Talk to your mortgage lender today to see if they offer the Family Opportunity Mortgage!
Benefits of the Second Home Mortgage with Fannie Mae
Securing a second home loan with Fannie Mae involves navigating specific eligibility criteria and adhering to the organization’s guidelines. Fannie Mae, a government-sponsored enterprise, primarily focuses on making homeownership more accessible, and while it primarily deals with primary residences, it does offer options for obtaining a second home loan.
Borrowers aiming for a second home must fulfill certain requirements, including demonstrating financial stability, meeting credit score standards, and having a debt-to-income ratio within acceptable limits. Fannie Mae permits the financing of up to ten properties for a single borrower, but meticulous attention to financial stability is essential.
To qualify for a second home loan with Fannie Mae, borrowers typically need to utilize the property for personal use and occupancy for a specific portion of the year. While Fannie Mae aims to facilitate homeownership, it’s crucial to understand that eligibility for a second home loan involves factors such as the borrower’s financial standing, the intended use of the property, and adherence to Fannie Mae’s lending guidelines.
Prospective borrowers interested in obtaining a second home loan should engage with mortgage lenders well-versed in Fannie Mae’s policies to navigate the application process effectively and secure the financing needed for their second home aspirations.
About RefiGuide
Bryan Dornan is a financial journalist and currently serves as Chief Editor of RefiGuide.org. Bryan has founded several mortgage and marketing companies and has worked as a loan officer and mortgage broker in the industry for over 25 years and has a wealth of experience in providing mortgage clients with the highest level of service in the industry. Bryan's continual focus is to promote affordable home-ownership to consumers like you across the United States. He also writes for RealtyTimes, Patch, Buzzfeed, Medium and other national publications. Find him on Twitter, Muckrack, and Linkedin
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