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 and Non-Occupying Co-Signors 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 for 2022 is $420,680. This is subject to change each October. In Chapel Hill the maximum FHA loan amount is $506,000.
FHA and Non-Occupying Co-Signors Mortgage Programs
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.
FHA and Non-Occupying Co-Signors – Credit Requirements
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.
If an Occupying Co-Borrower doesn’t have much credit, and that’s why their scores are lower, we can normally work through that. Sometimes, we only need to add that College Student to a parent’s credit card. It’s just a situation where your ONLY credit is truly bad credit that is difficult to overcome.
Conventional loans also have a provision that allows for a Non-Occupying Co-Borrower, and there and there are some advantages to doing so.
When a Non-Occupying Co-Borrower is used in qualifying for a conventional mortgage, the Occupying Borrower no longer needs to be able to qualify for the mortgage solely based on his or her own income.
There’s a 5% down payment requirement on a Conventional Loan with a non-occupying co-borrower, the 3% down payment is not allowed. The Credit Score requirements for a Conventional Loans are higher, and generally you would need at least a 680 credit score for all parties on the mortgage.
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 and Non-Occupying Co-Signors? Unlike Conventional Loans, FHA does not require any of the down payment to come from the Occupying borrower. This makes it much easier for a Graduate Student (for instance) to move out of Student Housing, and into a property they own. They can rent out rooms in their home, but we will not count that potential rent in their qualifying income for the mortgage.
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!
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?
Thanks.
Yes – sorry – sometime I ramble. That would be in situations where, for instance, the house exceeds the FHA limits for that area.
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?
Thanks!
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
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.
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.
Does the non-owner comaker sign the mortgage or just the note?
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.
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?
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.
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?
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.
Can a non occupying cosigner force sale of ur home to get their name off the loan?
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.
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!
I am not an accountant – and I believe that you need to ask this GREAT question to one. We’ve sent you a private response.
Hi Eleanor, will this work in other states outside of NC. I live in MD/DC area which is a very high cost area. My problem is my student loan debt, I owe 125k, and with the new laws that factor in 2% of this debt, my debt to income ratio will be high and I will not be able to qualify for anything. Would I be able to add my husband as a non occupying cosigner? His credit is not great at all, as he has student loans in default.
You should call Sean Andrews at (540) 809-6162 tell him Eleanor told you to call 🙂 You have options available to you… however, adding someone with Student Loans that are in default is probably NOT your best option!!
HI ELEANOR, I AM A SINGLE PARENT WANTING TO BUY HOME FOR THE FIRST TIME MY CREDIT IS 627, I HAVE ABOUT $8K DO PUT FOR A DOWN PAYMENT. I DONT HAVE A CO-BORROWER, WHAT ARE MY CHANCES OF QUALIFYING AND MAKING MY DREAM OF HAVING A HOME FOR ME AND KIDS, ALSO INCOME IS 2200.00 MONTHLY. THANKS!
We’ve already spoken, but as you know – your chances are really good. 🙂
To whom it may concern:
My family is interested in possibly purchasing our first home in the Raleigh, NC area using a first time Homebuyer FHA loan. We have the 3.5% to put down as a down payment. Our price range is a modest $160,000 to $190,000. I have a steady income with Social Security Disability making $36,000 a year with about a 700 credit score. My wife is a school teacher with a current salary of $55,000 here in New Jersey but a current credit score of 620. We are also looking into possible non-occupying co-borrows. My father in law may be a good candidate as he is 87 yrs old and owns his home outright. If my wife can get her name on her fathers home deed will that help to use as collateral for the loan? If my father in law can’t physically make it to North Carolina But still willing and able to sign paperwork as a co-borrower, would he be allowed? Any feedback would be greatly appreciated. . We plan on starting the moving process mid School year. Do you know if any good middle or high schools down there that may be hiring :-)? My father-in law would make a great non-occupant borrower (home owner and excellent credit) but cannot physically make the trip down to North Carolina. Would he be able to apply as a co-borrower from New Jersey? Also, just curious, I was prequalified on my own from Rocket Mortgage for a loan for $122,000. Not quite where I want to be but a significant start. Finally, hopefully my wife would have secured a teaching position in NC within a year. She has 10 years experience and an excellent resume. Any feedback and thoughts would be greatly appreciated! Thanks!!!
Tom
Great to hear from you! Yes, we always need teachers in NC, and if your wife continue to pay debt down, and make on time payments her scores will increase. assuming she has employment here, we should be able to get her scores to 640 pretty easily, and then you can qualify for down payment assistance, (grant) if you want it. Additionally, your father in law does not have to come to NC, we can take all information over the phone from him, and electronically (or US Mail) send him the docs we will need. Please call us so that we can go over the details regarding your move! 919 649 5058