If you qualify for a new mortgage, while carrying your current housing expense, you can certainly obtain a mortgage for your mother’s house, or your father, or your grandparents for that matter. The mortgage lender can structure the transaction a couple of ways. The simplest is to consider it a “non owner-occupied” house, and underwrite it as if it's a rental property, even though you presumably will not be collecting rent from your parent. Also, Fannie Mae has a clause by which a child can finance his parents’ home as if it is an owner-occupied residence. This is called the "Family Opportunity Mortgage."
Non Owner-Occupied Financing
If you qualify to carry the expenses on multiple homes, you can buy a house for your parents just as you would buy a property to rent. Because you do not intend to occupy the house, the lender considers it a riskier transaction and has stricter guidelines. At least a 20 percent down payment will be required and often a 25 percent down payment. Rates and fees will be higher than for an owner-occupied home. If you buy a house in this manner, the asset will belong completely to you.
If your mother already owns a house and you want to refinance it, structuring it in this manner will not be possible. Refinances require that the owner of the house before the refinance remain on the loan afterwards.
Co-signing with your Mother
You can look into co-signing with your parent on either a purchase or a refinance of a house she already owns in her name. If the transaction requires your income for qualification, in most cases the bank will consider the loan “non owner-occupied,” even though one of the mortgagees (your mother) lives in the house. Rates and fees will be the same as if you were renting the house. Some lenders offer an exception to this rule if significant equity is in the home, and both you and your parent demonstrate excellent credit histories.
Family Opportunity Mortgage
If your parent is a senior citizen, Fannie Mae's “Family Opportunity Mortgage” allows a working child to finance his non-working parent’s home without added fees. It is structured and underwritten as a “second home” similar to how financing would work on a vacation home. However, no distance requirements apply. You could buy the house next door for your mother and call it your “second home.” You must still qualify to carry two homes, whether or not your parent is actually reimbursing you for the mortgage payments. Another advantage to financing a home this way is that the down payment requirement is substantially less than with buying a rental property.
Tax Advantages of Rental Properties
The “Family Opportunity Mortgage” is only available for Fannie Mae financed loans. If you have enough cash to make a 25 percent down payment, it might be advantageous to finance the house as a rental property. A broader variety of mortgage programs may be available. Although rates and fees are higher for “non owner-occupied” mortgages, potential tax advantages come with owning a rental property. Utilities, insurance maintenance and repairs are tax-deductible, possibly making up for the cost of a more expensive mortgage loan.
With more than a decade of experience, Gregory Erich Phillips is a trusted expert on real estate and mortgage financing. As an author, Phillips is known for his writings on economics, personal finance, religion, politics and culture.