Homebuyers

What Is a Family Opportunity Mortgage? How to Buy a Home for Aging Parents or Disabled Children

Caring for a person with a disability or an elderly family member can be challenging, especially when figuring out where they’re going to live. Not everyone has the space to house an aging parent or loved one. And often family members would prefer a more independent living situation.

That’s where a Family Opportunity Mortgage may be a solution. These specialized loans allow you to purchase a home for a parent or child who couldn’t do it themselves, because of their age or ability.

“They work best for families trying to balance affordability with long-term planning in today’s housing market,” said Suzanne Seini, founder of Innovate Realty. She’s an Irvine, Calif.-based real estate agent who’s frequently worked with families navigating Family Opportunity Mortgages.

Family opportunity loans come with a few great perks for the borrower, too. Here’s what you need to know.

What is a Family Opportunity Mortgage?

Family Opportunity Mortgages are a type of loan meant for those purchasing a home for their elderly parents or disabled adult children who are unable to work or don’t have the income to afford the homes on their own.

The mortgages are a type of Conventional loan that allows borrowers to get the favorable mortgage terms that come with primary residence, even if they’re not living there themselves.

Fannie Mae Family Opportunity Mortgages don’t come with income caps. Typically, the earnings of the primary borrower, not the adult child or the elderly parent, matter most to lenders.

The primary borrower will need a minimum credit score of 620. Ideally, they will also have a maximum debt-to-income (DTI) ratio between 36% and 45%. The DTI is the amount of debt they have in comparison to how much they earn.

Most properties can be financed with this type of loan, whether it’s a single-family home in the suburbs or a condo in a city.

Before purchasing a home, primary borrowers will need to provide proof of income, as well as documentation that explains why the family member can’t independently qualify for a mortgage.

The advantages of Family Opportunity Mortgages

The biggest advantage to Family Opportunity Mortgages is the owner-occupancy carve-out. By offering the same loan terms as a home that’s the primary residence of the borrower, Family Opportunity Mortgages come with competitive interest rates, low down payment requirements, and property tax exemptions.

“These properties don’t need to be treated the same as a traditional investment property,” said Seini. “[That] is a huge benefit since you can have better financing terms. They make keeping family members nearby [more] affordable.”

Mortgage interest rates for these loans are often a quarter to three-quarters of a percentage point lower than those for investment or second home loans. They don’t have high down payment requirements either. Homebuyers may be able to put down just 5%. 

Additionally, as a Family Opportunity Mortgage is viewed as an owner-occupied home, primary borrowers may be able to claim some kind of homestead exemption depending on the state. These programs offer property tax reductions based on eligibility.

The disadvantages of Family Opportunity Mortgages

The most important thing to remember about a family opportunity loan is that it is another mortgage that you, the primary borrower, will be liable for the next 15 to 30 years. It’s not a short-term arrangement.

“People sometimes underestimate the long-term responsibility that comes with it,” said Seini. “Even when the support is family-driven, in reality, the borrower is still responsible for the mortgage, taxes, insurance, and maintenance.”

That means that if a family member isn’t able to contribute what they thought they could, it’s still up to the borrower to pay that monthly payment, no matter the previous arrangement. Missed payments will hurt your credit score, and that debt will affect your debt-to-income ratio as well.

Keep this in mind if you’re considering taking on new debt (or a new home) in the next several years. Your borrowing power will likely be limited thanks to that family opportunity loan.

It’s also important to remember that these types of loans involve a good deal of emotional and financial entanglement between family members. Without clear communication and expectations, it can get messy, fast.

If this isn’t something you’re prepared for, consider another way of supporting a family member. This may include helping pay for a rental, an assisted living program, or a suite or apartment in your own home.