Guides · Investing
How to finance an adult family home purchase
If the home is already licensed and operating, a normal 30-year home loan usually will not work. Lenders treat it as a business, not a house. That changes your down payment, your rate, your term, and who you can borrow from.
Why your usual mortgage does not fit#
Most buyers start by calling the lender who did their house. That call usually ends the same way.
A home loan is for a place you live in. An operating adult family home is a business with residents paying for care. Once a lender sees that, the file moves from the home loan desk to the commercial desk.
This is not a problem. It is just a different product, with different numbers. The trouble only starts when people plan around a home loan and find out late.
There is one exception worth knowing. If you are buying a plain house to convert later, and you will live in it, a normal loan may still work. The business has not started yet. Ask before you assume either way.
The paths that do work#
Four main routes. Most deals use one of the first two, often with the third sitting behind it.
- An SBA loanThis is the common route for buying a small business that comes with a building. It is built for exactly this kind of purchase, the down payment is usually lower than a bank asks, and the term is longer. In return there is more paperwork and a slower close. Not every bank does them well. Use one that does them often.
- A commercial loan from a bankA straight bank loan held in the bank's own book. Faster and simpler than an SBA file. You will usually need more money down, the term is shorter, and there may be a balloon payment later. Easier if you already run a home and the bank knows you.
- Seller financingThe seller carries part of the price and you pay them over time. This is more common in adult family homes than in ordinary houses, because the buyer pool is small and the license takes time to transfer. Often it sits behind a main loan rather than replacing it.
- Short-term money for the gapA bridge or private loan to cover the period between closing and the day you can legally operate. Expensive, and only worth it when the home is strong and the gap is short. Know the cost before you rely on it.
Rules, programs and costs change, and they differ between Seattle and each surrounding city. Figures on this page are dated where they appear. Confirm anything specific with the relevant city or agency before you rely on it.
Not sure how this applies to the house you're looking at?
Talk it through before you writeThe cost almost nobody budgets for#
You do not get the seller's license. You apply for your own. That takes time.
So there can be weeks or months where you own the home, you are paying the loan, and you cannot legally take a single resident.
Your lender will ask how you plan to cover payments during that time. If you have no answer, that alone can sink the file.
Work the number out early. Loan payment, taxes, insurance, utilities, any staff you keep on. Multiply by how long the license is likely to take. That figure belongs in your budget next to the down payment, not as an afterthought.
The house will not appraise for what you are paying#
Expect this, so it does not alarm you.
You are paying for a house and a running business. An appraiser looking only at nearby house sales will come back with a lower number, because the business is not in those comparisons.
Lenders handle this in different ways. Some order a business valuation as well. Some lend against the house and treat the rest as goodwill, and most limit how much goodwill they will finance.
Ask your lender how they will value it before you write an offer. The answer decides how much cash you actually need.
What lenders ask for#
Expect to be asked about you, not just the home.
Have you run a care home before, or worked in one. Lenders care about this more than first-time buyers expect. If you have no background in care, a strong manager who is staying can help.
Then the home's numbers. Two to three years of income and expenses if they exist. The resident count and who pays for each one. The license and its history.
Get these together before you start calling lenders. A buyer who arrives with the file ready is treated differently from one who does not.
Where I fit, and where I do not#
I am a real estate broker. I am not a lender and I am not a loan adviser. I cannot tell you what you will qualify for.
Three things I can do. I can tell you early whether a home is likely to be financeable at all. I can introduce you to lenders who have closed these before. And I can write the offer so the loan and the license have room to run side by side.
The most common mistake I see is an offer with a normal closing timeline on a purchase that needs a commercial loan. The timeline is the part you negotiate. Get that wrong and the price does not matter.
Common questions#
Can I use a normal mortgage to buy an adult family home?
Usually not, if the home is already licensed and operating. Lenders treat it as a business and move it to their commercial side. If you are buying a plain house to convert later and you will live in it, a normal loan may still work. Ask the lender directly before you plan around it.
How much money do I need down?
It depends on the route. SBA loans usually ask less down than a bank commercial loan. A bank will normally want more. Neither is a fixed number, and both depend on the home and on you. Get a real figure from a lender rather than working off an average.
Can the seller help me buy it?
Often, yes. Seller financing is more common in this market than in ordinary house sales, because the buyer pool is small and the license transfer takes time. It usually sits behind a main loan rather than replacing it.
What if the appraisal comes in low?
Expect it to. You are paying for a business as well as a house, and house comparisons do not include the business. Ask your lender in advance how they will value it and how much of the business value they will lend against. That tells you how much cash you really need.
Do I need care experience to get a loan?
It helps a great deal. Lenders want to know the home will keep running after you buy it. If you have not worked in care, a manager who is staying on, or a partner who has the background, makes the file much stronger.
Related guides
- Buying an adult family home in Washington: the buyer's guide
- Is an adult family home profitable?
- Buying an adult family home business in Washington
- Buy a licensed adult family home, or convert a house?
