This BLOG On FHA Non-Occupant Co-Borrower Guidelines On FHA Loans Was UPDATED And PUBLISHED On November 12th, 2020
FHA loans are probably the most popular mortgage loan programs in the nation today.
- FHA loans is the home mortgage of choice due to the lax mortgage lending guidelines compared to other home loan programs
- HUD, the parent of FHA, sets the minimum agency mortgage guidelines on FHA loans
- HUD’s mission is to promote homeownership for hard working Americans
- HUD created the minimum agency mortgage guidelines so homebuyers with credit scores as low as 580 FICO can qualify for a 3.5% down payment FHA loan at very low rates
- HUD allows for borrowers with under 580 credit scores and down to 500 FICO to qualify for FHA loans
- However, per HUD Agency Mortgage Guidelines, any borrower with under 580 credit scores and down to 500 FICO need to put a 10% versus a 3.5% down payment
FHA loans is the home mortgage program of choice for first time homebuyers, buyers with less than perfect credit and lower credit scores, and homebuyers with higher debt to income ratios.
Qualifying For An FHA Loan With Non-Occupant Co-Borrowers
Homebuyers who do not meet the maximum debt to income ratio caps on FHA loans due to one reason or another can still qualify with non-occupant co-borrowers.
- HUD allows more than one non-occupant co-borrowers to be added on an FHA loan
- Many self-employed borrowers who take substantial unreimbursed business expenses are the type of homebuyers who cannot meet the DTI requirements and may need non-occupant co-borrowers
- The main borrower and all non-occupant co-borrowers need to meet the minimum HUD Agency Mortgage Guidelines on FHA Loans
Non-Occupant Co-Borrowers do not have to reside at the property or live in the same state as the main borrower.
Adding Non-Occupant Co-Borrowers On FHA Loans
FHA Non-Occupant Co-Borrower Guidelines allows multiple non-occupant co-borrowers to be added to the main home buyer if they cannot qualify.
- FHA loans are not just for home buyers with bad credit or prior bankruptcy, foreclosure, deed in lieu of foreclosure, or short sale
- Homebuyers with perfect credit may not qualify for a conventional loan due to higher debt to income ratios
- Maximum debt to income ratio caps on conventional loan programs are capped at 50%
- FHA loans have a maximum front end debt to income ratio cap of 46.9% and a back end debt to income ratio up to 56.9% to get an approve/eligible per Automated Underwriting System
- The front end debt to income ratio is the proposed housing monthly payment
- Front End DTI consists of the principal, interest, property taxes, and homeowners insurance divided by the borrowers monthly gross income
- The back end debt to income ratio is the sum of the monthly housing payment (Principal, Interest, Taxes, and Insurance, also referred to PITI) PLUS all other monthly debts divided by the borrower’s gross monthly income
For mortgage loan applicants who have a debt to income ratios higher than 46.9% front end and 56.9% back end, FHA Non-Occupant Co-Borrower Guidelines allows borrowers to add non-occupant co-borrowers. In this article, we will cover and discuss FHA Non-Occupant Co-Borrower Guidelines On FHA Loans.
Qualifying To Be Non-Occupant Co-Borrower For FHA Loans?
Not everyone can be a non-occupant co-borrower.
- A non-occupant co-borrower needs to be related to the main borrower by blood, marriage, or law to qualify for 3.5% down payment FHA loans
- Non-occupant co-borrowers who are not related to main borrowers can be co-borrowers but the main borrower needs to put 25% down payment versus 3.5% down payment
For example, the following folks are eligible per FHA Non-Occupant Co-Borrower Guidelines:
- in laws, stepparents
- stepchildren can all qualify to be non-occupant co-borrowers per FHA Non-Occupant Co-Borrower Guidelines
A friend cannot be a non-occupant co-borrower unless the main borrower has known the friend for at least five years or more and the relationship can be documented.
Enforcement Of Family Relationship Of Borrower Versus Non-Occupant Co-Borrowers
Many times the relationship between the borrower and non-occupant co-borrowers is just asked about the relationship. Many lenders will not ask the proof of the relationship between the borrower and co-borrowers with regard to blood, marriage, and/or law.
- Mortgage lenders will not allow friends to be non-occupant co-borrowers if you tell them and/or state it on your mortgage loan application
- If you state that the non-occupant co-borrower is your step brother, most mortgage underwriters will take your word for it
- Cousins and other distant relatives may possibly qualify as non-occupant co-borrowers if related by blood, law, marriage
- This is depending on the mortgage lender
- Some lenders are more strict on who or who cannot be a non-occupant co-borrower while others just take the borrowers word for it
- Fannie Mae and Freddie Mac does not have the requirement of non-occupant co-borrowers to be related to the main borrower by blood, law, marriage
- Conventional Loans allow for non-occupant co-borrowers that do not have to related to main borrowers by blood, marriage, and/or law
Non-occupant co-borrowers go on the mortgage loan but not on title to the property unless they elect to go on title.
How Many Non-Occupant Co-Borrowers Can I Add?
If the main mortgage loan borrower has little or no income, the borrower can add a non-occupant co-borrower to qualify for income.
- There are no restrictions on how many non-occupant co-borrowers could be added on an FHA Loan
- There can be one or five non-occupant co-borrowers added to the main borrower’s FHA Home Loan
- On cases where the main borrower has negative income due to being self-employed and writing losses off their tax returns, the borrower will be classified as zero income
The negative income will not be offset by the non-occupant co-borrowers.
Credit Criteria For Non-Occupant Co-Borrowers
Both the main borrower and non-occupant co-borrower credit profiles are looked at.
- Lenders will go off the lower credit scores of either the borrower or non-occupant co-borrower
- Lenders go off the middle credit scores when qualifying a borrower’s credit score
For example, here is a case scenario:
- if the main borrower had a Transunion credit score of 400
- Equifax credit score of 600
- Experian credit score of 700
- The 600 credit score, which is the middle credit score, will be used as the qualifying credit score
If the non-occupant co-borrower has the following:
- 600 Transunion credit score
- 700 Equifax credit score
- 800 Equifax credit score
- The 700 credit score will be used to qualify the non-occupant co-borrower
Since the main borrower’s credit score of 600 is lower than the non-occupant credit score of 700, mortgage underwriters will go off the 600 credit score, which is the lower of the two borrower’s credit scores.
FHA Non-Occupant Co-Borrower Guidelines With Prior Bankruptcy, Foreclosure, Deed In Lieu Of Foreclosure, Short Sale
Besides qualifying for income and credit, non-occupant co-borrowers need to meet waiting period after bankruptcy, foreclosure, deed in lieu of foreclosure, and short sale if it applies to them.
- There is a two year waiting period after Chapter 7 bankruptcy discharge date to qualify for an FHA Home Loans
- There is a three year waiting period after the recorded date reflected on the county’s public records after foreclosure and/or deed in lieu of foreclosure
- For those previous homeowners with a prior short sale, there is a three year waiting period from the date of the short sale reflected on the HUD’s Settlement Statement
- Homebuyers in a Chapter 13 Bankruptcy Repayment Plan can qualify for FHA Loans one year into their Chapter 13 Repayment Plan with Trustee Approval
There is no waiting period after Chapter 13 Bankruptcy discharged date.
Will Being Non-Occupant Co-Borrower Hurt Chances Of Qualifying For Own Mortgage Loan?
Many folks love the chance to help a family member get home by becoming a non-occupant co-borrower.
- However, one of their concerns is that they do not want to hurt themselves by co-signing for a family member if by co-signing they will not qualify for a mortgage loan for themselves at a future date
- The good news is that by becoming a non-occupant co-borrower will not affect the non-occupant co-borrowers ability to qualify for another mortgage if the non-occupant co-borrower can provide they are not responsible for the payment of the co-signed mortgage
- This is proven by providing the main borrower’s proof of payment by providing 12 months of canceled checks from the main mortgage loan borrower
- 12 months of canceled checks are required in order to prove that the non-occupant co-borrower is not responsible for the main borrower’s mortgage payment
To qualify for a home mortgage with a national mortgage company licensed in multiple states with no lender overlays, please contact us at Gustan Cho Associates at 262-716-8151 or text us for a faster response. Or email us at email@example.com. The team at Gustan Cho Associates is available 7 days a week, evenings, weekends, and holidays.