Buying a home for a loved one can be a challenge, especially when the family member cannot qualify for a mortgage alone. Typically, if you buy a home for someone else without living there yourself, lenders classify it as an investment property, resulting in higher down payments (20-25%) and interest rates.
The Family Opportunity Mortgage guideline, established by Fannie Mae, offers an important exception. It allows you to purchase a home for a dependent family member — such as aging parents or disabled adult children — and have the loan treated like a primary residence mortgage. This means you can access lower down payments, often as low as 5%, and more favorable interest rates.
Why Is This Important?
Lenders offer the best loan terms for primary residences because homeowners are statistically less likely to default on loans for the home they live in. Investment and second homes carry higher risk, so lenders charge more to offset potential losses.
Recognizing that buying a home for a dependent family member is an act of care rather than an investment, Fannie Mae introduced this guideline to reduce the financial burden for families providing housing to loved ones who cannot qualify on their own.
How Does It Work?
Borrowers apply for a conventional mortgage like any other, but must provide documentation proving:
- Their relationship to the occupant (e.g., birth certificate)
- The family member’s financial inability to qualify independently, such as proof of retirement income or disability benefits
If approved, the loan is underwritten as owner-occupied, regardless of who will live in the home.
Eligibility Criteria
For the Borrower:
- Credit score of 620 or higher
- Adequate income to cover both their own housing expenses and the new mortgage payments
- Debt-to-income ratio generally below 45%
For the Family Member:
- Typically aging parents or grandparents who cannot qualify on their own
- Adult children with disabilities who are unable to support themselves
- Sometimes children attending college far from home, though rules are stricter and less commonly applied
Family Opportunity Mortgage vs. Investment Property Loan
| Feature | Family Opportunity Mortgage | Investment Property Loan |
|---|---|---|
| Loan Type | Owner-Occupied | Non-Owner Occupied |
| Down Payment | As low as 5% | Usually 20-25% |
| Interest Rate | Lower, similar to primary mortgages | Higher due to risk |
| Private Mortgage Insurance | Required if down payment is under 20% | Typically not needed due to higher down payment |
| Gift Funds Allowed | Yes | Often limited |
Saving thousands in upfront costs and monthly payments can make a significant difference to families caring for their loved ones.
Important Considerations
- You cannot rent out the property or collect rent from the family member; the home must be their primary residence.
- The Family Opportunity Mortgage is a guideline, not a separate loan product. Confirm your lender follows Fannie Mae’s rules.
- It typically covers parents or disabled children, not other relatives or financially independent family members.
For families looking to provide supportive housing, the Family Opportunity Mortgage offers a vital financial advantage. Ask your mortgage lender about this guideline if you are planning to purchase a home for a loved one.
For more details, see our related article on Investment Property Mortgages as well as the official Fannie Mae guidelines: https://selling-guide.fanniemae.com/Selling-Guide/Origination-through-Closing/Subpart-B2-Eligibility-Collateral/Chapter-B2-1-Mortgage-Eligibility/Section-B2-1-1-Occupancy-Types/1032999891/B2-1-1-01-Occupancy-Types.htm
Sources
- Fannie Mae Selling Guide: Occupancy Types
- NerdWallet, “What Is a Family Opportunity Mortgage?”
- Forbes Advisor, “Family Opportunity Mortgage: A Guide”