source: 2020 HUD Non-Occupant Co-Borrowers Guidelines On FHA Loans (gustancho.com)
Under the 2020 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
- The 2020 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
- 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 this article, we will discuss and cover the 2020 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
- However, 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.
2020 HUD 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.
2020 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
- Children and stepchildren
- Aunts & uncles
- Nieces and nephews
- Close friends with a documented long history of friendship
All eligible non-occupant co-borrowers need to be a U.S. citizen and/or permanent resident legal alien.
2020 HUD Non-Occupant Co-Borrowers 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
- 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.
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 foreclosure 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.
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.
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