FHA Guidelines On Co-Borrowers Versus Other Mortgage Programs

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This BLOG On FHA Guidelines On Co-Borrowers Versus Other Mortgage Programs Was UPDATED And PUBLISHED On June 6th, 2020

What are the FHA guidelines on co-borrowers and other mortgage programs

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 have 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 an FHA loan approval where they cannot qualify for conventional loan programs.

Benefits Of Adding Non-Occupant Co-Borrowers

FHA Guidelines On Co-Borrowers make homeownership possible for homebuyers who are self-employed. Or those with little or no income or those homebuyers 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
  • This holds true 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

In this article, we will discuss and cover FHA Guidelines On Co-Borrowers Versus Other Mortgage Programs.

FHA Guidelines On Co-Borrowers On Relationship To Main Borrowers

What are the FHA guidelines on co-borrowers regarding relationships with major borrowers

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

  • To be eligible to be a non-occupant co-borrower on an 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, grandparents, 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 homebuyers to qualify for FHA Loans with non-occupant co-borrowers with 3.5% down payment, the non-occupant co-borrowers need to be related to the 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, a 15% down payment is required. Only non-occupant co-borrowers related by blood, marriage, law can be added if the main home buyer wants to purchase a home with 3.5% down payment.

FHA Guidelines On Co-Borrowers With Credit Scores

When the main borrower adds 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 are lenders use the lower of the two mortgage loan borrower’s middle credit scores

For example, let’s 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

In the above case scenario, the co-borrowers 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

What are the FHA guidelines for co-borrowers with the addition of 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.

  • The 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 a higher debt to income ratios
  • Co borrowers on FHA Loans can be folks who are on a 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 the main borrower can be added to 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 the main borrower by blood, law, and/or marriage on conventional loans. For more information about this topic or to qualify for a mortgage with a national lender with no overlays, please contact us at Gustan Cho Associates at 262-716-8151 or text us for a faster response. Or email us at gcho@gustancho.com. The team at GCA Mortgage Group is available 7 days a week, evenings, weekends, and holidays.

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