The extremely low mortgage rates that are advertised on TV, radio, and the internet are typically reserved for people looking to buy a home that they plan to occupy as their main residence. A 2nd home or a vacation home generally is not afforded the same low rates.
This can create quite an issue when a person wishes to buy a home for their disabled adult child that is living with a disability.
For this reason, Fannie Mae has a set of guidelines, which is often referred to as a family opportunity, to help people in these situations.
For most loans like FHA, USDA, VA, or even most Fannie Mae and Freddie Mac home loans, the borrower must plan to live at the home as their main residence. This is the meaning of “owner-occupied.” In literal terms, the owner of the home also occupies or lives in, the home.
Unfortunately, other people are competent to live on their own but do not have the financial assets to afford their own home. The majority of these people have some type of disability that prevents them from pursuing a typical career track and earning increasing wages throughout their life. These people are not able to take advantage of low mortgage rates with an owner-occupied mortgage because they cannot afford the down payment and monthly payments needed to maintain a home.
Like a superhero appearing at just the right moment to save the day, these specific guidelines from Fannie Mae show up to help people with adult disabled children.
Getting a pre-approval letter from a lender for these guidelines is almost identical to getting approved for any conventional mortgage.
The borrowers will need to present documents showing their income for the past 2 years. This will include W-2’s from their jobs, recent pay stubs, and tax returns if anyone is self-employed.
They will also need to show proof of down payment. This can be in the form of bank saving statements, investment portfolio account statements, or any other type of investment that represents the source of the down payment for the home loan.
The parents will also be subject to a credit report review to ensure they have strong enough credit to get approved for the loan.
If a parent or parents currently have a home mortgage and other debt, it would seem a bit of financial stress to take on a 2nd mortgage on a separate mortgage.
The guidelines state that the debt to income ratio can be as high as 50%.
This means that the parent’s income will be compared to the current monthly debt payments plus the proposed mortgage payment for the new home.
Provided that the ratio is 50% or less, then the borrowers will have a good chance of getting approved for the loan.
Some lenders may have loan overlays that require reserves of 3 to 6 months' worth of mortgage payments. Each lender will be slightly different, and your loan officer can explain these differences to you.
As previously mentioned, the best interest rates do not typically apply to the purchase of a vacation home or an investment property. Also, buying a vacation home or investment property normally requires a down payment of at least 20% of the purchase price. For a typical home priced at $150,000, this means that the down payment would be $30,000.
HOWEVER, Fannie Mae does not require this large of a down payment for these guidelines.
Typically, the down payment is only 5%. So, for the aforementioned $150,000 example, the family would only need to pay $7,500 for a down payment. This is a savings of $22,500 just in the down payment.
This one feature makes these guidelines a much more appealing option compared to a private care facility or other similar assisted living options.
Typically, when people wish to buy a 2nd home, also called a Vacation Home, there is a rule that the 2nd home must be a minimum of 100 miles away from the borrower’s main residence.
For these guidelines, there are no restrictions about the location of the home. The home for the adult child can be located across town from the parents or it can be as close as next door.
There may be a question mulling around like “this all sounds good, but why is Fannie Mae offering these kinds of guidelines?”
The simple answer is RISK.
All mortgage loans are a risk by the lender. The lender is extending money to the borrower in hopes of getting repaid, plus interest. The higher the risk, the higher the interest rate and the higher the subsequent private mortgage insurance.
Fannie Mae feels that it is a good risk to afford parents a feasible option to purchase a home for their adult children with disabilities. Fannie Mae also feels that a parent is much more likely to do their best to make the payments compared to making payments on an investment property.
With the low down payment and great rates offered by conventional loans, these guidelines from Fannie Mae are a wonderful option for people with adult children that need a bit of independence while keeping them close to home.
These guidelines not only cover your disabled adult child. They can also be used to purchase a home for your parents, which I cover in detail on Vocal.Media.
Additional Helpful Home Buyer Resources:
If you are looking for help answering some of the most common real estate questions home buyers have, take a look at this post by Sharon Paxson. Should you buy or rent? Should you hire a real estate agent? What is an earnest money deposit? Those questions and more get answered!
Closing costs are a part of every home purchase and that money will always be on top of any down payment requirements (buyers) or commission (sellers). Knowing those costs and budgeting for them is the best way to avoid any unwanted surprises at the closing table. This post by Kevin Vitali goes through the most common closing costs that can be expected for both the home buyer and seller!
Is using a local real estate agent a smart idea? Vicki Moore writes about 8 ways an out-of-state agent can cost you more money. Learn why in the insightful post.
If you're getting a mortgage, understanding what a loan commitment is, where it falls in the loan process, and what it means are all answers you should absolutely know! Take a look at this article by Joe Boylan to find out everything you need to know about loan commitments!
About the author: This article on “How To Buy A Home For Your Disabled Adult Child” was written by Luke Skar of MadisonMortgageGuys.com. As the Social Media Strategist, his role is to provide original content for all of their social media profiles as well as generating new leads from his website.
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