Buying a home for your college student or disabled adult child can be challenging. The same holds for acquiring a home for your elderly parent(s) to live in. Potential buyers find lenders often treat these transactions as investment purchases, requiring down payments of 20% or more. The interest rates on investment homes can be .5% (or more) above
owner occupied homes as well. As a loan officer, I've seen many
parents who didn't have adequate down payment funds available, and ended
up renting residences for their children.
Fannie Mae, however, also allows certain homes to be classified as owner occupied (with better interest rates and reduced down payments), even if the buyer doesn't live there. Fannie's guidelines state: "Parents
wanting to provide housing for their college student child, physically
handicapped or developmentally disabled adult child, or children wanting
to provide housing for elderly parents" can, if they meet
program requirements, be considered owner occupied. Sadly, although
Fannie Mae allows this definition of owner occupancy, many lenders
don't.
I recently had clients who wanted to buy a home for their adult son
to live in. The son was unable to work, and his parents were willing and able to buy him a home. They did not, however, have 20% in liquid funds for the down payment on the home they wanted to buy. They considered cashing in retirement funds and incurring large tax penalties,
and their financial advisor asked me if I had any options allowing them
to buy a home without drawing down their investment portfolio.
After researching our underwriting guidelines, I determined that they met Fannie's requirements. They were pleased when I gave them their pre-approval letter for a 95% conforming loan, and delighted when we closed 30 days later. Their financial advisor couldn't have been more relieved, and they avoided the tax penalties on early retirement account withdrawals. I was happy to have been in a position to help and hope that by sharing this story, more families in need become aware of this obscure, but beneficial program.
After researching our underwriting guidelines, I determined that they met Fannie's requirements. They were pleased when I gave them their pre-approval letter for a 95% conforming loan, and delighted when we closed 30 days later. Their financial advisor couldn't have been more relieved, and they avoided the tax penalties on early retirement account withdrawals. I was happy to have been in a position to help and hope that by sharing this story, more families in need become aware of this obscure, but beneficial program.
