I was just trying to help the guy out. He wanted to refinance his mortgage but his credit scores and debt-to-income ratio prevented him from doing so. His response was not all that unusual. “This makes no sense! I’m already paying the higher mortgage so why won’t you let me get a lower payment? Do you think I’m going to have trouble making the lower payment?”
Look, I see the logic here. But I had to explain that the CFPB and our “looking-out-for-the-consumer” regulators have clearly dictated to us lenders what we can and cannot do and if you don’t qualify for the new loan based on their parameters, you’re out of luck. Ours is an industry not entirely governed by common sense — with a few exceptions.
One of those exceptions is the program formerly known as Family Opportunity. This program allows a borrower to obtain a mortgage as if it were a primary residence, but for a property that will be occupied by an elderly parent or a disabled child. Let’s look at each scenario, then examine why the primary home distinction is so important.
Borrower: Parents or legal guardians wanting to provide housing for their physically handicapped or developmentally disabled adult child.
Requirements for Owner Occupancy: If the child is unable to work or does not have sufficient income to qualify for a mortgage on his/her own, the parent or legal guardian can be considered the owner occupant.
Borrower: Children wanting to provide housing for parents.
Requirements for Owner Occupancy: If the parent is unable to work or does not have sufficient income to qualify for a mortgage on his/her own, the child can be considered the owner occupant.
So what’s the big deal(s) about owner occupancy anyway? There are a few. First, an owner-occupant scenario will allow the borrower to reach the highest available loan-to-value (LTV) for any scenario. This translates to a lower down payment in situations where it’s evident that the “owner occupant” might already have a primary residence elsewhere and would purchasing an additional residence. The difference between a 5% down payment and a 20% down payment, for example, could well be the difference between possible and impossible when trying to help a family member.
Second, interest rates. Simply and relatively speaking, a primary home’s rates will almost always be better than if the same scenario is priced as a second or investment home. Again, the net effect is affordability and feasibility and for caregivers this can be vital.
If you find yourself in a situation where you’d like to assist with the housing needs of a parent or child who meets the criteria of the mortgage parameters above, get in touch any time and I’ll be happy to help you figure out a way to maximize this family opportunity. In an industry not known for its “common sense” solutions, this is one valuable exception.
Those were the days,
Vice President of Mortgage Lending
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