If your elderly parents want to move into a new home but can’t obtain financing on their own, you might be able to help through special loan guidelines offered by Fannie Mae and Freddie Mac for conventional mortgages.
Commonly known as a family opportunity mortgage, this option makes it easier for children to purchase or refinance a home for their parents. Here is a look at this loan — what it is, how to obtain one and what alternatives exist when it isn’t a good fit.
[Read: Best Mortgage Lenders]
What Is a Family Opportunity Mortgage?
The family opportunity mortgage was the name Fannie Mae used for a program that allowed people to help their disabled children or elderly parents qualify for a loan. Officially, the program no longer exists, but the same guidelines used for this mortgage are still available through conventional loans.
People still refer to this loan option as a family opportunity mortgage, and you might also hear it called a “family helping family” or “intra-family” mortgage. Regardless of the name used, it allows you to get a mortgage for your elderly parents or disabled adult children as if it were your primary residence, even though it won’t be. This loan makes it cheaper for children to get a mortgage for their parents’ home, as long as they meet certain requirements. Otherwise, mortgage interest rates and down payment requirements are usually higher on a home you aren’t going to live in full-time.
It’s also possible for parents to use the loan guidelines to purchase a home for a disabled child who can’t do so independently, says Bruce Salik, senior vice president of mortgage lending and branch manager at Rate.
“The great thing about this program is that even if the adult child or parent already owns a home, the new loan still gets the same terms and rates as if it were their primary residence,” Salik says.
Purchasing a second home often means the buyer must make a larger down payment than for a primary residence, and the interest rate might be higher. This program allows you to have a down payment as small as 5% and get a low interest rate, says Nadia Evangelou, senior economist and director of real estate research for the National Association of Realtors.
“This helps you do something good for your parents,” she says.
How Can You Qualify for a Family Opportunity Mortgage?
Lenders that offer loans using the family opportunity mortgage guidelines will follow the requirements set by Fannie Mae and Freddie Mac, government-sponsored enterprises that purchase mortgages to provide more funding to the housing market.
A family opportunity mortgage requires:
— A 620 minimum credit score
— A 45% maximum debt-to-income ratio
— Steady employment and the ability to support your own housing costs as well as those of the new mortgage
— Parents or an adult child who can’t afford the home on their own
— A lower DTI ratio and higher down payment for those with lower credit scores
Fannie Mae does not specifically refer to the loans as family opportunity mortgages but does provide guidelines if children want to obtain a mortgage on behalf of their parents: If parents are unable to work or do not have sufficient income to qualify for a mortgage on their own, the children can be considered the occupant. Fannie Mae and Freddie Mac offer similar guidance for parents or legal guardians who want to provide housing for a disabled adult child.
“The loan can be qualified based solely on the applicant, and the elderly parent or disabled child is not required to be on the mortgage application or title,” Salik says. “The borrower should provide a written statement detailing the intentions regarding the use of the home.”
In both situations, the mortgage applicant needs to have sufficient income, assets and credit to qualify for the loan on behalf of the family member, Salik says. The mortgage would be factored into the borrower’s debt-to-income ratio, which is an important consideration in loan approval.
[Read: Best Mortgage Refinance Lenders.]
Family Opportunity Mortgage Benefits
A family opportunity mortgage offers a number of benefits over traditional second-home mortgages.
The down payment and interest rates are lower. The financial terms are often better than those for a second home or investment home mortgage. If a lender isn’t familiar with family assisted mortgages, it might request a much larger down payment and price the loan as an investment property, which has a significantly higher interest rate, Salik says.
There are no occupancy requirements. For second homes, Fannie Mae requires that the borrower occupy the house for some part of the year. There are no such requirements when using the special guidelines for a family assisted mortgage.
There are no distance requirements. Typically, lenders want a second home to be at least 50 miles away from the first. “There are no distance requirements between the adult child’s current primary home and the home they are assisting their parents with,” Salik says. “If the home is on the same street as the child’s primary residence or in another town, the home is still priced and underwritten as a primary residence.”
“Both Fannie Mae and Freddie Mac recognize (these loan guidelines); therefore, you have the flexibility to choose between the two investors in determining which option is best,” Salik says. “There may be specific factors in the loan that would qualify for Fannie but not Freddie (or vice versa), and this provides you with options.”
[Read: Best FHA Loans.]
What Are the Alternatives to Getting a Family Opportunity Mortgage?
While a loan using the guidelines of a family opportunity mortgage is a good option for many people supporting parents or adult children, it isn’t the only one. Consider these alternatives, too:
— Become a co-borrower or cosigner. Children can become co-borrowers on their parents’ purchase or refinance and specify that they will not live in the home. With cosigning, the children are helping their parents get loan approval with no expectation of living in the home. During underwriting for either co-borrowing or cosigning, the lender will consider the children’s assets and income, Salik says.
— Opt for an assisted living facility. Parents might prefer to live in an assisted living facility, which wouldn’t require a mortgage. But they will need sufficient income or assets to cover monthly costs. According to the National Center for Assisted Living, the national median monthly cost of assisted living services is $5,350.
— Help your parents look into a reverse mortgage. Reverse mortgages allow parents to use the equity in their current home to receive a lump sum or payments over many years; the children wouldn’t be involved in this transaction at all.
— Rent to your parents. Children can buy their parents’ home and rent it back to them or buy a different home and charge rent.
Not all lenders are familiar with the special guidelines associated with family opportunity mortgages, but it’s worth asking about the program, as you might be able to reach a financial arrangement that works for everyone.
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How the Family Opportunity Mortgage Can Help You Buy a Home for Your Elderly Parents originally appeared on usnews.com
Update 05/21/26: This story was previously published at an earlier date and has been updated with new information.
