FHA and Non-Occupying Co-Signors

FHA has a unique qualification / underwriting guideline, that allows you to purchase a home, with a relative that does not live in the house… “The FHA Non-Occupying Co-Signor Program”  is sometimes, referred to in the Mortgage Industry as a “Kiddie Condo,”  because frankly it’s perfect for purchasing a house for kids in college!

FHA and Non-Occupying Co-SignorsInstead of renting a dorm, many NC parents put the student on the mortgage loan and purchase a house, splitting the rent with others!  We also use this program for 55+ adults who having aging parents who can not, for whatever reason, qualify to purchase a home – and the child helps the parent qualify for a mortgage loan.

Quite often First Time Homebuyers have a need for someone else to be on a mortgage with them in order to qualify to purchase a home.   Additionally, we see situations where one spouse has a credit issue, and while the other spouse has great credit scores (maybe one had a foreclosure or short sale), they can’t qualify for the new house on their single income.  In each of these cases, we refer clients to the FHA mortgage loan program, because of it’s common sense underwriting approach.

FHA sets loan limits for each county – so it’s important to remember that in Wake County, NC (for instance) the maximum loan TODAY is $295,000.  This is subject to change each October.

FHA Non-Occupying Co-Borrower Mortgages have a couple of options.

FHA Guidelines Section 606.02 Non-Occupying Owner Borrowers, states:

“When there are two or more borrowers, but one or more will not occupy the property as a principal residence, the maximum mortgage is limited to a 75% LTV.  However, maximum financing (as described in sections 605 to 605.03) is available for borrowers related by blood, marriage or law (spouses, parent-child, siblings, stepchildren, aunts-uncles/nieces-nephews, etc.), or for unrelated individuals that can document evidence of the family-type longstanding and substantial relationship not arising out of the loan transaction.”

A Non-Occupying Borrower who is not related to the Occupying Borrower, requires a 25% down payment.

  • If the Non-Occupying Borrower is related to the Occupying Borrower, then they only need to have a 3.5% downpayment.
  • Both the Non-Occupying Borrower’s income & debts, and the Occupying Borrower’s income & debts are used in qualifying for the FHA Mortgage.

The occupying Borrower also needs to have a Credit Score – normally above 620. It is important to know that the co-signer’s credit cannot overcome credit problems with the primary “owner occupying” buyer- the lower of the all of the borrower’s credit scores will be used for qualifying.

Conventional loans also have a provision that allows for a Non-Occupying Co-Borrower, but there is no advantage to doing so.  This is because when a Non-Occupying Co-Borrower is used in qualifying for a conventional mortgage, the Occupying Borrower still needs to be able to qualify for the mortgage solely based on his or her own income.  There’s also a cap of 90% LTV (meaning you must make a 10% down payment and 5% of that money must come from the Occupying Borrower’s own funds).  Additionally, if there are some qualifying issues – FHA uses Common Sense, Compensating Underwriting Guidelines for qualifying for a FHA Mortgage Loan in NC.

Have more questions about FHA Loan Non-Occupied Co-Borrower?  

If you or someone you know is considering purchasing a home in Raleigh or Cary – or if you have more questions about FHA and Non-Occupying Co-Signors, please call Steve and Eleanor Thorne  Government Loan Experts in Raleigh, NC  919-649-5058.  We offer today’s lowest mortgage rates!


  1. Andrew says

    Thank you for the helpful post, Eleanor.

    When you say “There’s also a cap of 90% LTV (meaning you must make a 10% down payment and 5% of that money must come from the Occupying Borrower’s own funds)” you’re referring to conventional loans, not FHA loans correct?


  2. Eleanor says

    Yes – sorry – sometime I ramble. That would be in situations where, for instance, the house exceeds the FHA limits for that area.

  3. Jen says

    Can both of my parents be non occupant co borrowers on my loan application? Do their assets help me or just their income? If I need more money for my down payments, will I still need a gift from them if their also on my loan?


  4. Eleanor says

    Jen! Hey – great news! You can use EITHER or BOTH of your parents on your loan application with FHA. Their Assets can help you, and since they will be on the loan, you can use those assets for the down payment (no need for a gift). Congrats! It’s a great time to buy a house! You can call us with questions at 919 649 5058

  5. Hammond says

    Can I use more than one co-borrower (My cousin and his wife) to refinance my current FHA loan from 30yr term to 15yr? The current LTV is 56% and I put more money down to lower the monthly payment. Thanks.

  6. Eleanor says

    Yes – you can refinance to a 15 year and add non-occupying co-borrowers… but if you are adding them because you don’t have good credit, it won’t work. Co-borrower’s only “add” to an approval if you don’t have enough income.

  7. Eleanor Thorne says

    I’m not sure what you mean by the Mortgage or the Note? In NC we have a Deed (which is the Title to the Property) and the NOTE which is the obligation on the loan. Both Owner Occupying and Non-owner occupying sign BOTH the Note and the Deed of Trust for this FHA Co-Borrower type loan. Hope that helps.

  8. steve says

    Hi. Thanks for the great info. Question. My daughter’s husband has the only income in their family and he is coming off of a bankruptcy a few years ago (before they were married). Will FHA accept my daughter and husband as primary and my wife and I as non-occupying co-borrowers considering the bankruptcy? If not, could just my daughter be on the mortgage even though she has no income…would it default to just my wife and my incomes?

  9. says

    Steve – Your daughter can go on a loan with you and your wife. The loan would be made based upon her good credit and your income.

    If her husband has been out of the BK for at least 24 months – he might be able to buy a house. If he has not re-established his credit, he needs to get a couple (literally 2 or 3) Secured Credit Cards. It does cost @ $100 bucks in fees, etc. to establish each of these accounts – but it’s worth it. If your daughter has credit cards that are in good standing, with balances at @ 30% of the high credit – she should add him to the account asap. It will help him re-establish credit much quicker.

  10. Santina says

    I purchased a home with my sister eight years ago. She has been delinquent for the past seven years. I have tried to give her time but she refuses to pay on time. Instead she pays quarterly. Right before the foreclosure process she will make a payment. I have been trying to buy my own home for my family but cannot until there is 12 months on time payments. She cannot refinance due to her credit. What rights do I have and how could I possibly remove myself from this situation?

  11. says

    My suggestion would be to make the payments on the loan – and have your sister pay you on a quarterly basis. I know that this is a matter of trust – will she pay you? You can go to an attorney and force her to sale the residence, but that doesn’t seem like a great option either. Sorry this has happened.

  12. says

    You would need to read your Deed of Trust and Note – in NC that is normally not possible – but there are “riders” that might be added by someone that says if you are habitually late no payments, then… “X” will apply. You are welcome to call us. We have not seen anything like that added – it would have to be approved by all parties.

  13. kmulford1 says

    I have a situation where a non-occupying borrower contributed funds towards the closing of my current home. We’re currently selling and realized that there may be a tax liability for the non-occupying borrower since they are going to receive part of the profit but have not occupied the home personally. Is this a byproduct of having a non-occupying borrower on the note? Or is the assumption that 100% of the money provided at closing belongs to the occupying borrowers regardless of who actually provided the money at the time of closing?

    Thanks for your time!

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