The Family Opportunity Mortgage is a great way to purchase a home for a family member. We’ll explain how this little-known mortgage product works and the basic qualifying requirements you’ll need to meet.
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What is a Family Opportunity Mortgage?
The Fannie Mae Family Opportunity Mortgage program is a type of conventional (non government-backed) home loan that enables you to purchase a home for a family member with owner-occupied pricing and lending requirements even though you don’t plan to live in the home.
In the past, if you wanted to purchase a home for your aging parents, it would be considered investment property – whether you collected rent or not. Investment property mortgages are considered riskier from a lending standpoint, so they have higher rates and fees and larger minimum down payment requirements than owner-occupied mortgages.
The Family Opportunity Loan is considered owner-occupied financing even though you don’t plan to live in the home. This means you can purchase a home for aging parents or disabled adult children with financing terms that are more attractive than what was available in the past.
Lower Rates and Costs
There’s no downside to using the Family Opportunity Mortgage loan to purchase a home for a relative.
It’s not even a new loan product, really. Fannie Mae simply took the existing owner-occupied lending guidelines and applied them to a loan scenario where somebody buys a home for an aging or disabled family member.
What was once considered an investment property mortgage is now an owner-occupied mortgage, which offers some nice advantages:
- Lower interest rates and costs – You can purchase a home for a family member with owner-occupied pricing, which is typically much more attractive than investment property pricing.
- Lower down payment requirements – The minimum down payment for an investment property is typically 20% to 25% of the purchase price. The Family Opportunity Loan offers a minimum down payment of just 5% of the purchase price.
- Less stringent lending requirements – Investment property mortgages are considered riskier, so they have more stringent lending requirements for credit scores, debt-to-income ratio, and cash reserves. A Family Opportunity Loan is essentially an owner-occupied mortgage, so it’s much easier to qualify for than an investment property mortgage.
Current Interest Rates
Check out the table below for the latest conventional purchase mortgage rates. You can also search FHA and VA interest rates, if you like.
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How to Qualify
Qualifying works exactly the same way as it does for a regular owner-occupied conventional loan. Here are the basic Family Opportunity Mortgage requirements:
- Minimum 620 credit score – Ideally, you want your scores to be at least 700 for the best interest rates and closing costs.
- Minimum 5% down – If you put down less than 20% of the purchase price, you’ll be required to pay private mortgage insurance (PMI).
- Stable income history – You’ll need to document the last two years of your income and employment. Self-employment is typically OK, but you’ll need to provide two years worth of personal and business tax returns.
- Maximum 45% debt-to-income ratio (DTI) – You may be able to slightly exceed 45% with strong credit scores and documented liquid assets, such as savings or retirement accounts.
- Proof of income for your relative – You’ll need to prove that the family member for whom you’re purchasing the home can’t afford the home on their own. You can typically prove income with W2s, paystubs, Social Security Benefit Statements, pension award letters, etc.
Your lender may also ask you to provide a written statement explaining your intentions for the new home.
What’s the Downside?
There really isn’t a downside to this type of loan because it’s really not a new loan product to begin with. Fannie Mae simply applied the owner-occupied lending guidelines to a loan scenario where somebody purchases a house for a relative.
Instead of essentially getting an investment property mortgage, you can now get the same loan terms you would get for a home you live in.
Frequently Asked Questions
What is a Family Opportunity Mortgage?
A Family Opportunity Mortgage enables you to purchase a home for a family member with owner-occupied pricing and lending requirements even if you’re not planning to live in the home.
Is Fannie Mae Family Opportunity Mortgage being discontinued?
No, the Family Opportunity Mortgage is alive and well. It enables you to purchase a home for a family member with owner-occupied pricing and lending requirements even if you’re not planning to live in the home.
What is the DTI for the family opportunity mortgage?
The Family Opportunity Mortgage falls under Fannie Mae lending guidelines. The standard maximum DTI for a Fannie Mae mortgage is 45%.
Is there such a thing as a family mortgage?
Yes, it’s called the Family Opportunity Mortgage. Under certain circumstances, it enables you to purchase a home for a family member with owner-occupied pricing and lending requirements even if you’re not planning to live in the home.