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!
Instead 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!