Principal Residence as Investment Property?
Hello!
I am purchasing an investment property for my elderly parents to retire in. My lender is offering me a “Family Opportunity Mortgage” option- a special borrower eligibility occupancy rule in which Fannie Mae expands the definition of a primary residence to allow me to purchase this home for my parents at Principal Residence rates and terms.
From the Fannie Mae website: “If the parent is unable to work or does not have sufficient income to qualify for a mortgage on their own, the child is considered the owner/occupant” for principal residence properties.
I am concerned about occupancy fraud. My loan documents indicate that this is a Principal Residence (owner occupied), but I was advised by my realtor to designate the home as an investment property on the home purchase agreement. Is this the correct designation for this property on the purchase agreement contract? Does it even matter?
Given this scenario, would I still be able to charge my tenant parents fair-market rent? What legal considerations do I have to be aware of with this kind of investment property which is classified as a Principal Residence?
Thank you in advance for any insight and/or recommendations.
This is interesting and I haven't heard of this before. I am working on doing something similar so let me research this and see what I can find!
https://selling-guide.fanniema...
How many units will this property have?
The lender requirements would be what they require to be on the contract for them to process the loans. If they say it needs to say owner occupant then that is what it would need to say. Since they are your parents and the lender has a provision for that I think that would be fine. Of course consult an attorney before signing anything! :)
As far as charging them rent. I would explore other options for that. If this is so they can help you build wealth while you help them in retirement, talk to your accountant about annual gifting from parent to child.
IRS documents on gift tax exclusion:. https://www.irs.gov/businesses...
I suspect there might be a question of intent. The guidelines are for a child wishing to provide housing for their parents not for a child to buy a property and rent it out to their parents at market rates. Once the intent hurdle is cleared up, the legal docs follow.
@Cheryl Packham - Yes, the lender has a provision to allow for my parents to be living in the house while it is a primary residence for me. I spoke to an attorney about this set-up and they said it was legal, as long as the lender has this provision.
@Sergey A. Petrov - I decided not to charge my parents fair-market rent after-all. Technically, I can not "rent" this home to them during the first year, as my loan documents indicate. However, my lawyer said that there is no law against my family gifting money to me. That said, I am consulting with a CPA tomorrow to see how I can arrange an annual gifting option from my parents. After this first year, I will sign new documents with my lender to designate the home as an investment property in the future.
Quote from @Cheryl Packham:
https://selling-guide.fanniema...
How many units will this property have?
This is a SFR
To OP I am glad you got the answers you were looking for. Thanks for posting this. It is a very interesting concept.