In 2022, lenders rejected 9.1% of the total home loan applications. The main reason for this rejection was the bad credit score and unstable income of the buyers.
However, the Federal Housing Administration (FHA) has several loan assistance programs for such borrowers.
But what if the borrower fails to qualify for usual FHA loan assistance too? Here, FHA’s non-occupant co-borrower program comes to the rescue of such buyers.
📌4 KEY FEATURES OF FHA Non-Occupant Co-Borrower
- FHA’s non-cccupant co-borrower program is designed to help potential homebuyers with bad credit scores.
- Almost all FHA loan programs require a down payment as low as 3.5%.
- FHA loans don’t have any minimum income requirements.
- FHA programs allow loans for different types of properties. These include condos, single-family, multifamily properties, etc.
What Is a Non-Occupant Co-Borrower?
A non-occupant co-borrower can be any family member of the primary borrower. The co-borrower shares the responsibility to repay the debt if the primary borrower defaults.
Moreover, a co-borrower does not need to be an occupant of the same house as the primary borrower.
FHA Non-Occupant Co-Borrowers Guidelines
Here are some key FHA guidelines for non-occupying co-borrowers:
- Relationship Requirement: The non-occupying co-borrower must have a family relationship with the primary borrower. Acceptable relationships include parents, grandparents, siblings, aunts, uncles, and legal guardians.
- Qualifying Income: The income of the non-occupying co-borrower can be included in the loan qualification process. It can help the primary borrower meet the required debt-to-income (DTI) ratio for FHA loans.
- Creditworthiness: The co-borrower should meet the FHA’s credit requirements, including a minimum credit score of 500.
- Co-Borrower Obligations: The primary borrower and non-occupying co-borrower share the financial obligation and are liable for any default.
- Residency Requirements: While the non-occupying co-borrower does not need to live in the property, the primary borrower must occupy it as their primary residence.
- Loan Limits and Terms: The loan amount and terms, which you can estimate using a mortgage calculator, are based on the combined qualifications of the primary and the non-occupying co-borrower.
How Does an FHA Co-Borrower Program Work?
The FHA non-occupant co-borrower program functions in the following ways:
- Loan Application: The primary and co-borrower submit a joint loan application to the lender. Furthermore, they provide personal information, including income reports, employment history, assets, and liabilities.
- Credit Check: The lender performs a credit check on the primary and co-borrowers. This helps determine their creditworthiness and assess the risk associated with the loan.
- Income and Debt Evaluation: The lender evaluates the joint income and debt obligations of the primary borrower and co-borrower. Moreover, the lender calculates the debt-to-income ratio (DTI) to assess their financial stability.
- Loan Approval: Mortgage approval is subject to both borrowers fulfilling the lender’s requirements. Also, the approval process may involve additional documentation, such as bank statements and tax returns.
- Shared Liability: After the loan approval, fund disbursal takes place. Both borrowers are equally responsible for repaying the loan.
- Credit Reporting: The loan and payment details are added to the credit reports of both the primary borrower and co-borrower. Any missed or late payments could impact their credit scores.
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- 📌Important: FHA guidelines may be subject to updates and changes over time. It’s advisable to consult with an experienced mortgage lender or an FHA-approved lender for the most up-to-date information.
Difference Between Co-Signer and FHA Co-Borrower
While both individuals assist the primary borrower in obtaining an FHA loan, there are distinct differences between the two:
| Co-Signer | Co-Borrower | |
| 1 | A co-signer is someone who agrees to be legally responsible for the loan if the primary borrower defaults. | A non-occupant co-borrower is a person who is included on the loan application alongside the primary borrower. They are not required to live on the property. |
| 2 | The co-signer’s primary role is to provide additional credit strength to the buyer. | The primary purpose of a non-occupant co-borrower is to help the primary borrower qualify for the loan. It is done by utilizing their income, assets, and creditworthiness. |
| 3 | A co-signer’s income and debt are not considered in an FHA loan. | In the case of a non-occupant co-borrower, their income and creditworthiness are factored into the loan application. |
Bottom Line
The FHA non-occupant co-borrower program is beneficial for prospective homebuyers who may not qualify for an FHA loan. However, the co-borrower is equally responsible for the loan, and any default or financial issues can impact both parties.
It’s advisable to consult a qualified mortgage professional to understand the implications and risks associated with a co-borrower agreement.
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Frequently Asked Questions
Does FHA allow non-occupant co-borrower program?
Yes, FHA allows non-occupant co-borrower program for buyers who fail to qualify for usual FHA loans.
What is the DTI value required for FHA's non-occupant co-borrower?
If both the primary borrower and co-borrower have a credit score of 620 or more, they will be approved with DTI up to 57% .
Does opting for an FHA non-occupant co-borrower impact the credit score of the co-borrower?
Yes, all loan details are added to the credit reports of both the primary borrower and the co-borrower. Any missed or late payments could impact both parties' credit scores.
Can I flip my co-borrowed house
Yes, you can flip your co-borrowed house as your co-borrower won't have the rights to use the house. However, you must abide by the FHA flipping rules before taking any step further
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