FHA Non-Occupant Co-Borrower Guidelines On FHA Loans

Gustan Cho Associates are mortgage brokers licensed in 48 states

FHA Non-Occupant Co-Borrower Guidelines allow non-occupant co-borrowers to be added to the main borrower. FHA loans are probably the most popular mortgage loan programs in the nation today. FHA loans are 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.

FHA Loans With 500 Credit Scores

HUD allows for borrowers with under 580 credit scores and down to 500 FICO to qualify for FHA loans. Per HUD Agency Mortgage Guidelines, any borrower with under 580 credit scores and down to 500 FICO needs to put a 10% versus a 3.5% down payment. FHA loans are 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

HUD 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 is capped at 50%.

Debt to Income Ratio Guidelines on FHA Loans

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 borrower’s 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.

Adding Non-Occupant Co-Borrowers For High DTI Borrowers on FHA Loans

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?

Benefits Of Adding Non-Occupant Co-Borrowers

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 a 3.5% down payment FHA loan. 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:

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 stepbrother, 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.

What Defines A Family Member On Non-Occupant Co-Borrowers on FHA Loans

Some lenders are more strict on who or who cannot be a non-occupant co-borrower while others just take the borrower’s word for it. Fannie Mae and Freddie Mac do 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.

The Number of Non-Occupant Co-Borrowers Can I Add On My FHA Loan?

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 to 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. Mortgage 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

Risks When Cosigning For The Mortgage

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 the Chapter 7 bankruptcy discharge date to qualify for an FHA loan. 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

HUD FHA Non-Occupant Co-Borrower Guidelines For Borrowers with High Debt To Income Ratio

Under the HUD Non-Occupant Co-Borrowers Guidelines, non-occupant co-borrowers can be added to the main borrower. To qualify for a 3.5% down payment home purchase FHA loan with non-occupant co-borrowers, the non-occupant co-borrower needs to be related by the main borrower by law, blood, or marriage. HUD Non-Occupant Co-Borrowers Guidelines allow non-occupant co-borrowers who are NOT related by blood, law, marriage to be added to the main borrower. However, if the non-occupant co-borrower is not related to the main borrower by blood, law, marriage, a 15% down payment is required.

How Many Non-Occupant Co-Borrowers Can Be Added to FHA Loans

The main borrower can add as many non-occupant co-borrowers to the FHA loan. The non-occupant co-borrower does not have to occupy the property nor do they have to live in the same state as the property. Under Fannie Mae and Freddie Mac Agency Mortgage Guidelines, non-occupant co-borrowers do not have to be related to the main borrower on conventional loans However, FHA is different. Only those related to the main borrower by law, blood, marriage can qualify for a 3.5% down payment home purchase FHA mortgage. In the following paragraphs, we will discuss and cover the HUD Non-Occupant Co-Borrowers Guidelines On FHA Loans.

Benefits Of Adding Non-Occupant Co-Borrowers

Both FHA and Conventional loans allow for non-occupant co-borrowers. Conventional loans do not have to have the non-occupant co-borrowers to be related to the main borrower by law, marriage, blood. However, to qualify for a 3.5% home purchase FHA loan with non-occupant co-borrowers, the non-occupant co-borrower needs to be related to the main borrower by blood, marriage, law. FHA does all non-occupant co-borrowers who are not related to the main borrower to be added on the FHA loan.

HUD FHA Non-Occupant Co-Borrower Guidelines on Non-Occupant Co-Borrowers Not Related to Main Borrowers

2020 HUD Non-Occupant Co-Borrowers Guidelines On Who Are Eligible

For non-occupant co-borrowers who are not related to the main borrower by law, marriage, blood, HUD requires a 15% versus a 3.5% down payment. Adding non-occupant co-borrowers is often required for borrowers who exceed the mandatory maximum debt to income ratio caps. There are no limits on the number of co-borrowers that can be added to the main borrower on FHA loans. Borrowers who have high debt to income ratios and/or cannot use the income they are making may benefit by adding non-occupant co-borrowers in order to qualify. Adding co-borrowers are common for self-employed borrowers and 1099 wage earners where they write a lot of deductions from their income tax returns.

HUD FHA Non-Occupant Co-Borrowers Guidelines On Credit And Income

There are times when adding a co-borrower cannot help.

  • If there are multiple borrowers on a mortgage, lenders will use the lower middle credit score of all borrowers
  • For example, if the main borrower meets the minimum credit score requirement but the co-borrower does not, the main borrower will not qualify for a mortgage because the lender will use the middle credit score of the co-borrower
  • Mortgage rates will be priced with the middle credit score of the lower credit score borrower
  • The co-borrowers income will be taken into effect
  • Adding co-borrowers with low or negative income or without qualified income is of no use
  • All co-borrowers need to meet the minimum agency mortgage guidelines
  • This holds especially true with waiting period requirements after bankruptcy and foreclosure
  • Whatever documents the main borrower provides, the non-occupant co-borrower needs to do the same

All co-borrowers need to meet the HUD’s borrower guidelines.

HUD Non-Occupant Co-Borrowers Guidelines On Who Are Eligible

If you put a 15% down payment on an FHA loan, the non-occupant co-borrowers do not have to be related by blood, law, marriage. However, if you only want to purchase a home with 3.5% down, all non-occupant co-borrowers do need to be related by blood, marriage, law.

Here are the eligibility guidelines of law, blood, marriage:

  • Spouses and ex-spouses
  • Parents
  • Siblings
  • Children and stepchildren
  • Aunts & uncles
  • Cousins
  • Nieces and nephews
  • Close friends with a documented long history of friendship

All eligible non-occupant co-borrowers need to be U.S. citizens and/or permanent resident legal aliens.

FHA Non-Occupant Co-Borrower Guidelines On Non-Eligible Borrowers

Non-occupant co-borrowers who have a financial interest in the property are not eligible to qualify. The following people cannot qualify:

  • Purchase and/or sellers real estate agent
  • Sellers of the subject property
  • Homebuilder
  • Home appraiser
  • Buyer’s and/or sellers real estate attorney
  • The loan officer and/lender

Co-borrowers on a mortgage have rights of ownership to the property. Non-occupant co-borrowers are liable for the mortgage in the event the main borrower defaults but have no ownership of the property.

FHA Non-Occupant Co-Borrower Guidelines: Risks When Cosigning For The Mortgage

Many non-occupant co-borrowers are worried about the risks associates with cosigning for a family member on a mortgage. Will cosigning affect them from obtaining a mortgage in the future? There are risks associated with cosigning for a mortgage. If the main borrower is late with the monthly mortgage payments, it will affect the cosigner’s credit scores. Late payments on the cosigner will affect their credit scores. If the main borrowers go into foreclosure, the foreclosure will report on the cosigner. It will affect the cosigner from getting a future mortgage. The cosigner needs to meet the mandatory waiting period after oreclosure to qualify for a mortgage. However, if the main borrower makes timely mortgage payments for at least 12 months, the cosigner does not have to use the cosigned mortgage when qualifying for a new mortgage. This only holds true if the main borrower can prove 12 months of payment history. The cosigner needs to prove he or she is not responsible for making the cosigned mortgage loan.

FHA Non-Occupant Co-Borrower Guidelines: Removing The Cosigner From The Mortgage

Mortgage borrowers can qualify to refinance their current home loan after six months from closing. As long as you have made six monthly payments to the mortgage servicer, homeowners can refinance FHA and Conventional Loans on a rate and refinance and take out the cosigner off the original loan. Most homeowners with cosigners will refinance once they meet the minimum debt to income ratio requirements after closing. 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 protected] The team at Gustan Cho Associates is available 7 days a week, evenings, weekends, and holidays.

Related> FHA lender overlays

Related> Do I qualify for a mortgage?

Related> Exempt debts from debt to income ratios

Related> Factors that affect pre-approval