The 'parent loan' can yield a mother lode of savings
By JEFF LAZERSON / CONTRIBUTING COLUMNIST
It was July 30, 2015. My favorite (and only) son and I drove 11 exhausting hours in monsoon-like conditions from the OC to Tucson. We were on a mission to move him to more affordable quarters ahead of his third year fall classes at the University of Arizona.
It was his last night at his former tri-level apartment. After my son tucked me in on the very top level bedroom, I lay awake, staring at the ceiling. I started awfulizing about the attic on the other side of the ceiling.
It was close to midnight. I quietly called my wife and asked her if she thought this was a taste of what’s to come: Being locked in the attic in our golden years because we’d need our son to house us and he would have no other place to put us.
On a more serious note, too many families face a big challenge of finding affordable accommodations to house their parents; those parents that simply cannot afford to go it alone. And, living with you may not be ideal, attic or not.
Fannie Mae offers a little known, very useful loan program nicknamed the parent loan that allows children to buy a home to shelter their parents, putting as little as 5 percent down.
Orange County maximum loan limits for one unit go up to $625,500. The bonus here is cheaper, owner-occupied pricing and significantly less down payment compared to buying a rental property for the folks. Rentals minimally require 15 percent down and a higher interest rate of at least one-quarter percent.
The occupying parents do not have to be on title with the qualifying kids. You will have to prove through tax returns and the like that your parents cannot qualify on their own.
Here’s an example: Recently I arranged parent financing for the son of a recently retired Orange County homeowner. This parent sold her home to move closer to her son, daughter-in-law and grandchildren 200 miles to the north.
Because she had too little retirement income and a poor credit report, she could not qualify for the home loan. She gifted the proceeds of her Orange County home to her son for the down payment.
It’s always a good idea to consider and compare all of the pros and cons of this parent loan or renting a place for the folks. For example, if they are going downhill physically or mentally, an apartment or assisted living might be a better choice.
This loan program is common for adult children purchasing property for their parents in 55 and over communities.
Parents or legal guardians wanting to provide housing for their physically handicapped or developmentally disabled adult child are also eligible for this principal residence pricing, according to the Fannie Mae website.
Jeff Lazerson - Mortgage Columnist since 2011