Adding Non-Occupant Co-Borrower On FHA Loans

Adding Non-Occupant Co-Borrower On FHA Loans

This BLOG On Adding Non-Occupant Co-Borrower On FHA Loans Was UPDATED On January 26th, 2018

The Federal Housing Administration allows for non occupant co borrower to be added on a FHA loan where the borrower does not qualify due to higher debt to income ratios. Adding non-occupant co-borrower on FHA Loans is allowed. More than one co-borrower can be added per HUD Guidelines.

  • The non-occupant co-borrower can be added to the FHA loan so the main borrower can qualify for the mortgage loan
  • Cases adding non-occupant co-borrower on FHA Loans is when the borrower does not have enough income to qualify by themselves

Self Employed Mortgage Loan Borrowers

Adding Non-occupant co-borrower on FHA Loans comes in super handy when the main borrower is a self employed borrower. Self employed borrowers often have substantial portion of their income not declared. Or the main borrower writes off many expenses where their adjusted gross income does not qualify for the mortgage income requirement.

  • The main borrower can have very little or no income as long as the non- occupant co- borrower’s credit and income will qualify for the new mortgage loan
  • Non-occupant co-borrowers are only on the mortgage loan to help the main borrower to qualify for income and are not on the title to the home purchase

Non-Occupant Co-Borrower Requirements

To qualify by adding non-occupant co-borrower on FHA Loans, the person needs to be related to the main borrower either by blood or by law.

  • By law means that adoptive children can be non-occupant co-borrowers
  • Or can have their adoptive parents as non-occupant co-borrowers
  • Non-occupant c0-borrowers can be the following:
    • Father
    • Mother
    • Grandmother
    • Grandfather
    • Brother
    • Sister
    • Aunt
    • Uncle
    • Son
    • Daughter
    • In laws
    • Other relatives with close ties to the main borrower

Attached Is HUD’s Mortgage Lending Guidelines For Non-Occupant Co-Borrowers:

  • Non-Occupant co-borrower.
    • Maximum financing is available for borrowers related by blood, marriage or law:
      • Spouses
      • Parent-child
      • Siblings
      • Stepchildren
      • Aunts-uncles
      • Nieces-nephews, etc
      • Or for unrelated individuals that can document evidence of a family-type, longstanding, and substantial relationship not arising out of the loan transaction
    • All borrowers, regardless of occupancy status, must sign the security instrument and mortgage note
    • If a parent is selling to a child, the parent cannot be the co-borrower with the child on the new mortgage unless the loan-to-value is 75 percent or less

Mortgage Loan Structure In Adding Non-Occupant Co-Borrower On FHA Loans

A residential mortgage loan has two components:

  • The first is the promissory note, or mortgage
  • That creates the terms of the mortgage loan, also called the note
  • Note consists of a promise to pay contractual agreement between the mortgage loan borrower and the mortgage lender
  • A deed of trust or trust deed is the collateral that links the residential mortgage loan to the subject property
  • It creates a lien on the home title which is released by the mortgage lender when the mortgage loan is paid in full
  • It is released also when the property is refinanced out to another mortgage lender
  • Normally recorded in the recorder of deeds office in which the subject property is located at
  • Non occupant co borrower will sign all mortgage loan documents including the mortgage loan promissory note
  • But will not sign the deed of trust or trust deed

Risks And Rewards Adding Non-Occupant Co-Borrower On FHA Loans

A non-occupant co-borrower’s function is to help a family member qualify for a mortgage loan. They are not allowed to have any financial benefit by being a non-occupant co-borrower other than helping a family member out.

  • Non-occupant co-borrowers are responsible for the mortgage loan if the main borrower defaults
  • If the main borrower is late on his or her monthly mortgage payments, the non-occupied co-borrower’s credt report will reflect a late payment as well
  • The non-occupant co-borrower assumes a great deal of risk without any benefits of ownership
  • However, the reward is that without the non-occupant co-borrower, home ownership will not be possible for the main borrower/home buyer
  • This is something a loved one can do and it is priceless

Future Liabilities In Adding Non-Occupant Co-Borrower On FHA Loans

The mortgage balance and payment will not count against a non-occupant co-borrower from qualifying for another mortgage after one year.

  • This is if the non-occupant co-borrower can provide 12 months of cancelled checks from the main borrower to show that he or she was not responsible for the mortgage payment and are just acting as a co-borrower
  • It will not affect the debt to income ratios

Home Buyers with higher debt to income ratios who need to qualify for FHA Loans with a direct lender with no mortgage lender overlays on government and conventional loans can contact The Gustan Cho Team at USA Mortgage at 262-716-8151 or email us at gcho@usa-mortgage.com.

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