How Does FHA Define Family Member For Non-Occupant Co-Borrowers

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How Does FHA Define Family Member For Non-Occupant Co-Borrowers

This BLOG On How Does FHA Define Family Member For Non-Occupant Co-Borrowers Was UPDATED On September 20th, 2018

How Does FHA Define Family Member For Non-Occupant Co-Borrowers

Adding Non-Occupant Co-Borrowers And How Does FHA Define Family Member

How Does FHA Define Family Member?

  • FHA has FHA Guidelines on How Does FHA Define Family Member
  • The definition of family member will come into play when it comes to adding non-occupant co-borrowers
  • HUD 4000.1 Guidelines allows non-occupant co-borrowers to be added on a FHA Loan if the main borrower cannot qualify on their own due to not enough income, no income, or negative income
  • HUD, the parent of FHA,  does not have any restrictions on how many non-occupant co-borrowers can be added to the main borrower
  • However, FHA does require that non-occupant co-borrowers be family members of the main borrower for 3.5% down payment home purchase FHA Loan

Under HUD Guidelines, non-occupant co-borrowers who are not related to main borrower by law, blood, and/or marriage can qualify. However, non-family members who become co-borrowers are added on the FHA Loan, the main borrower needs to put 15% down payment. To qualify for 3.5% down payment FHA Loan, non-occupant co-borrowers need to be family members.

Purpose For Adding Non-Occupant Co-Borrowers

Purpose For Adding Non-Occupant Co-Borrowers

Non-Occupant Co-Borrowers are needed if the main borrower has no income, little income, or negative income:

  • If main borrower cannot qualify for a mortgage loan by themselves due to higher debt to income ratio and them exceeding the maximum FHA DTI Guidelines then adding non-occupant co-borrowers is the solution
  • FHA will allow up to 46.9% front end and 56.9%  for borrowers with at least 620 FICO Credit Scores to get an AUS Approval
  • Maximum DTI limits for borrowers with credit scores under 620 FICO  is 43% DTI to get an approve/eligible per automated underwriting system
  • Any borrowers that exceed these debt to income ratios would need a family member and/or family members to be non-occupant co-borrowers in order for them to qualify

Borrowers And Non-Occupant Co-Borrowers With FHA Versus Conforming Loans

Borrowers And Non-Occupant Co-Borrowers With FHA Versus Conforming Loans

Home Buyers with no income, little income, or negative income can qualify for a FHA home purchase mortgage loan with non-occupant co-borrowers.

  • However, non-occupant co-borrowers also need to qualify with credit and other FHA Guidelines besides just income
  • With regards to credit scores, the lower of the two or more borrowers middle credit scores will be used for credit qualification purposes

For example, lets take the following case scenario where the main borrower has two non-occupant co-borrowers:

Borrower A:

  • 520 FICO TransUnion
  • 620 FICO Experian
  • 700 FICO Equifax

Middle Credit Score 620 FICO

Co-Borrower B:

  • 600 FICO TransUnion
  • 700 FICO Experian
  • 800 FICO Equifax

Middle Credit Score 700 FICO

Co-Borrower C:

  • 500 FICO TransUnion
  • 600 FICO Experian
  • 750 FICO Equifax

Middle Credit Score 600 FICO

Co-Borrower C has the lowest middle credit of 600 FICO.  So the credit scores of Co-Borrower C will be used as the qualifying credit scores for this mortgage loan application.

How Does FHA Define Family Member And Who Can Qualify As Non-Occupant Co-Borrowers

How Does FHA Define Family Member And Who Can Qualify As Non-Occupant Co-Borrowers

FHA has updated the FHA Guidelines on September 14, 2015 and the new revised FHA Guidelines is called the HUD 4000.1 Handbook. FHA defines family member as someone who is related to the borrower by blood, law, or marriage.

Here is the people that are classified as family members and these folks will all qualify as non-occupant co-borrowers:

  • children, parent, or grandparent
  • a child is defined as a son, stepson, daughter, or stepdaughter
  • parent or grandparent includes a step-parent/grandparent or foster parent/grandparent
  • spouse Or Domestic Partner of the main borrower
  • legally adopted son or daughter
    • including a child who is placed with the borrower by an authorized agency for legal adoption
  • Foster Child of the borrower
  • brother, Stepbrother of the borrower
  • sister, Stepsister of the borrower
  • uncle of the borrower
  • aunt of the borrower
  • son-in-law of the borrower
  • daughter-in-law of the borrower
  • father-in-law of the borrower
  • mother-in-law of the borrower
  • brother-in-law of the borrower
  • sister-in-law of the borrower

Family Member Versus Non-Family Member

Family Member Versus Non-Family Member

Under HUD Guidelines, non-family members can be added on the loan. However, if main borrower adds non-family members as non-occupant co-borrowers, then 15% down payment is required versus 3.5% down payment. Borrowers who need to qualify for FHA Loans with a direct lender with no overlays on government and/or conforming loans, please contact us at Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email us at gcho@gustancho.com.

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