Underwriting: owner occupied loan by child providing for a parent

6 Replies

Hi folks,

I have a question regarding Fannie Mae's owner occupied financing option for "Children wanting to provide housing for parents":

https://www.fanniemae.com/content/guide/selling/b2...

What information about my parents would an underwriter require to qualify me (the child) for such a loan?

Is citizenship or US residency of my parents a factor for the underwriter in this case?

Context:

1. I've owned a condo in Seattle WA for more than 1 year and have an owner occupied conventional loan for it.

2. There is a similar unit in the same condo that I'd like to buy for my parents' use when they visit. The building has an owner occupancy below 50%. Due to to the owner occupancy rate the building does not qualify for Fannie Mae conforming investment loans (only owner occupied loans). This is why I'm forced to evaluate the "children provide housing for parents" option rather than an investment loan.

3. I am a green card holder but my parents are still Canadian citizens living in Vancouver BC (about 2.5 hours away) and have not started their green card application.

Thanks for your help on this topic and any advice that you might care to share!

My husband and I did something similar for our daughter when she went to college and we didn't want to pay for a dorm for 4 years.  It was a kiddie condo loan, or non-occupying co-borrower.  The entire loan was based on our credit and financial qualifications.  They looked very little at our daughter as she had a part time job, and short term credit.  I DO believe, however, that they required her to submit a government issued ID.  I'm not sure if that means that only US citizens are offered that kind of loan, or not.

My question to you is why don't YOU buy the new unit as an owner occupied Borrower and move into it, then let your parent's stay in YOUR previous unit?

This would keep your down payment low, and accomplish your goal without having to deal with an investor loan.

Something to consider.  I hope this helps!

Best of luck to you!!

Thank you for your reply Cara.

>> My question to you is why don't YOU buy the new unit as an owner occupied Borrower and move into it, then let your parent's stay in YOUR previous unit?

I'm happy to buy the unit and move into it. The challenge with that approach is that I'd need to explain why I want to move to the new unit to give the underwriter a reasonable explanation that I am not using the new unit as an investment property. 

The current unit that I'm considering is nearly identical to my unit (i.e. it is the same floor plan and one floor above) and does not have advantages in terms of number of bedrooms, size, reduction of noise or more light, etc. If a bigger unit goes on the market, I'll revisit this option.

Please let me know if I've misunderstood anything and the letter of explanation can be crafted based on other factors that I am not aware of.

Originally posted by @Steven Bennett :

Thank you for your reply Cara.

>> My question to you is why don't YOU buy the new unit as an owner occupied Borrower and move into it, then let your parent's stay in YOUR previous unit?

I'm happy to buy the unit and move into it. The challenge with that approach is that I'd need to explain why I want to move to the new unit to give the underwriter a reasonable explanation that I am not using the new unit as an investment property. 

The current unit that I'm considering is nearly identical to my unit (i.e. it is the same floor plan and one floor above) and does not have advantages in terms of number of bedrooms, size, reduction of noise or more light, etc. If a bigger unit goes on the market, I'll revisit this option.

Please let me know if I've misunderstood anything and the letter of explanation can be crafted based on other factors that I am not aware of.

 This is something that always makes me mad at lenders for.  They always think us deceitful!  It's infuriating.  

Some of this can be avoided by choosing the right lender.  Many of them won't have that kind of hang up, especially if the purchase price is higher than your original unit.  I have a good one that I work with in AZ....that also offers loans nationwide.  I could offer you their contact info if you PM me (the system won't let me post it).

Also, if the property has any updating or renovation done, you could argue that you are moving up and into a better fit for yourself.

The only other idea would be to start marketing your unit for rent, and secure a short term lease on your unit, making it necessary for you to find a new home. It would be hard to dispute the need for a new unit if your current one was rented out. Just be sure to check with your HOA to see if there is any minimum requirement for lease terms. Many of them require at least a 12 month lease initially.

If I think of anything else, I'll let you know.

@Steven Bennett   I'm fairly certain these loans are intended for parents that plan to live in the property full time as their primary residence.  I don't believe they are intended to help people buy vacation or second homes.  Because your parents are not full time US residents, that will most likely be a problem since they will not be using the property as their primary residence.   

You would also have to qualify for both mortgages using your own income.

I would run this scenario by a lender that you would like to apply with and ask them what documentation their underwriter will require.  

@Steven Bennett there is a lot going on here so I will try my best to summarize:

1. The Fannie Mae selling guide section that you referenced is for people "unable to work"...meaning persons who are disabled, or who cannot work for some other reason, or cannot qualify due to income restrictions on their own.  This does not apply to non-us citizens.  The income in question would need to be US taxed based income for a Fannie Mae loan.  So if someone made US tax based income, but did not have enough to qualify, then the family member could sign as the primary resident.

2. The conventional rules for lending to non-us citizens without any permanent residency is that they cannot lend to those individuals.  You would need to seek a "foreign investor" loan.  That loan type is a non-conforming loan and it would carry a significantly higher rate.

3. Lending to a non-approved Fannie Mae condo building would also require lender approval.  Lenders have the ability to spot approve condo complexes if they desired.  Some lenders do not participate in this type of approvals and some do.   So if this lender is telling you they cannot lend on this type of a condo then perhaps try another lender.  There are non-conforming condo loans out there...but again these carry a higher rate.

4. And the Fannie Mae (and Freddie Mac) guide would both require some type of reason why you would be inhabiting a 2nd condo unit in the same building as your own to count it as a 2nd home.  I cannot see a solution to this aspect.  

My recommendation is to seek either a different lender that might be able to approve a Freddie Mac loan for this complex or seek a "non-conforming condo" loan.  This may not be what you wanted to hear but it's the right information to have.

Andrew Postell, Lender in Texas (#392627)
817-873-0621

@Steven Bennett I can't speak for other lenders as I am not a broker. But in our case we would do the loan on our portfolio product. Similar to the kiddie condo loan that Cara talked about. To do this with a non citizen involved there are significant liquid reserve requirements. The less than 50% occupancy issue may cause a problem, but portfolio loans usually allow for some exceptions. Especially with great compensating factors, like LTV and lots of reserves.

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