FHA Guidelines On Co-Borrowers Versus Other Mortgage Programs


FHA Guidelines On Co-Borrowers Versus Other Mortgage Programs

This BLOG On FHA Guidelines On Co-Borrowers Versus Other Mortgage Programs Was UPDATED On August 27th, 2018

Updated FHA Guidelines On Co-Borrowers:

HUD has implemented and launched the new HUD FHA 4000.1 Handbook on September 14, 2015 where many changes has been made to HUD Lending Guidelines. HUD is the parent of FHA.

  • FHA Loans are hands down the most popular residential mortgage loan program in this country
  • FHA Home Loans normally has more lenient mortgage lending guidelines than Fannie Mae and Freddie Mac’s conventional loan programs
  • Home Buyers with less than perfect credit, low credit scores, outstanding collection accounts, prior bankruptcy, prior foreclosure, prior deed in lieu of foreclosure, prior short sale, judgments, tax liens, charge off accounts, and higher debt to income ratios often can get a FHA loan approval where they cannot qualify for conventional loan programs
  • FHA Guidelines On Co-Borrowers make home ownership possible for home buyers who are self employed or those with little or no income or those home buyers who work for cash and do not have documented income for mortgage lenders to be able to use
  • Fannie Mae and Freddie Mac now allows non-occupant co-borrowers to be added to main borrowers
  • Home Buyers with low credit scores can often qualify for FHA Loans as long as they have documented income
  • However, those with perfect credit scores and no income cannot qualify any other mortgage loan programs
  • Income is key when qualifying for a home loan

FHA Guidelines On Co-Borrowers On Relationship To Main Borrowers

FHA requirements on FHA Guidelines On Co Borrowers state that the following:

  • To be eligible to be a non-occupant co-borrower on a FHA Loan, the non-occupant co-borrower needs to be related to the main borrower by blood, law, or marriage
  • What this means is that non-occupant co-borrowers can be parents, brothers, sisters, grand parents, sons, daughters, daughter-in law, son-in law, father-in law, mother-in law, grandparents in laws
  • However, there are some lenders like myself that really do not enforce the relationship
  • We normally just take the borrower’s word for it
  • There are some lenders where they want to see documentation as to the relationship about non-occupant co-borrowers
  • Non-occupant co-borrowers will go on the mortgage note but do not need to go on title unless they need to

In order for home buyers to qualify for FHA Loans with non-occupant co-borrowers with 3.5% down payment, the non-occupant co-borrowers needs to be related to main borrower by law, blood, and/or marriage. Non-Occupant co-borrowers not related to main borrowers by law, blood, and/or marriage can become non-occupant co-borrowers, however, 15% down payment is required. Only non-occupant co-borrowers related by blood, marriage, law can be added if main home buyer wants to purchase a home with 3.5% down payment.

FHA Guidelines On Co-Borrowers With Credit Scores

When a main borrower add a non-occupant co-borrower or just a co-borrower on the mortgage loan, the co-borrower’s credit scores will be reviewed also.

  • The credit scores used in qualifying for the mortgage loan when it involves co-borrowers is lenders use the lower of the two mortgage loan borrower’s middle credit scores
  • For example, lets take this case scenario in explaining what qualifying credit scores mortgage lender will use when qualifying for a mortgage loan:
    • Main Borrower: John Smith: Credit Scores are 780 TransUnion, 680 Experian, 580 Equifax
    • The middle credit score for John Smith is 680 Experian
    • Co-Borrower: Jesse Smith: Credit Scores are 650 TransUnion, 581 Experian, 500 Equifax
    • The middle credit score for Jesse Smith is 581 Experian

On the above case scenario, the co-borrower’s credit score of 581 will be used for qualifying purposes because Jesse Smith, the co-borrower, has the lower middle score between the two borrowers.

FHA Guidelines On Co-Borrowers With Adding Multiple Co-Borrowers

FHA Guidelines On Co Borrowers allow more than one co borrower to be added on the FHA Loan for income qualification purposes.

  • A main borrower can have multiple co-borrowers to qualify for income in the event if one co-borrower does not have sufficient income or have higher debt to income ratios
  • Co borrowers on FHA Loans can be folks who are on fixed income like social security, disability income, or retirement income
  • Non taxable income borrowers can have their non taxable income grossed up by 15%

Other Loan Programs With Adding Non-Occupant Co-Borrowers

VA Home Loans does not allow non-occupant co-borrowers. Only legally married spouses to main borrower can be added on VA Mortgages. USDA does not allow non-occupant co-borrowers. Conventional Loans does allow non-occupant co-borrowers. Co-borrowers do not have to be related to main borrower by blood, law, and/or marriage on conventional loans.

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