BluefoxToday blog : FHA Non-Occupying Owner Borrower Mortgage

FHA Non-Occupying Owner Borrower Mortgage

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.  While conventional loan products have a provision for this, it is not a very good one, and do not really provide an advantage to do so.  The only true option for a Borrower that cannot qualify to purchase a property on his or herr own is FHA.  FHA Non-Occupying Owner 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."

  • So if you have a Non-Occupying Owner Borrower who is not related to the Occupying Borrower, they need to have a 25% downpayment.
  • It the Non-Occupying Owner Borrower  is related to the Occupying Borrower, then they only need to have a 3.5% downpayment.
  • Both the Non-Occupying Owner Borrower's income & debts, and  the Occupying Borrower's income & debts are used in qualifying for the FHA Mortgage.

As stated in the beginning conventional loans also have a provision by which there can be 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.  Furthermore:

  • The Total-Debt-To-Income Ratio cannot exceed 43%
  • Loan-To-Value (LTV) cannot be higher than 90%
  • And at least 5% of the Downpayment has to be from the Occupying Borrowers own funds.

So this leads to the question, why would anyone take on the financial obligation for a mortgage, if their income cannot assist the Occupying Borrower in qualifying for that mortgage?  I for one fail to see any sense in doing that, and therefore to the conclusion that the only viable option a FHA Non-Occupying Borrower Mortgage.

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Info about the author:

George Souto is a Loan Officer who can assist you with all your FHA, CHFA, and Conventional mortgage needs in Connecticut. George resides in Middlesex County which includes Middletown, Middlefield, Durham, Cromwell, Portland, Higganum, Haddam, East Haddam, Chester, Deep River, and Essex. George can be contacted at (860) 573-1308, gsouto@mccuemortgage.com, or visit my McCue Mortgage Homepage.

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 Info about the author:

George Souto NMLS# 65149 is a Loan Originator who can assist you with all your #FHA, #CHFA, and #Conventional #mortgage needs in Connecticut. George resides in Middlesex County which includes #Middletown, #Old Saybrook, #Middlefield, #Durham, #Cromwell, #Portland, #Higganum, #Haddam, #East Haddam, #Moodus, #Chester, #Deep River, and #Essex. George can be contacted at (860) 573-1308 or souto@snet.net

Comment balloon 15 commentsGeorge Souto • September 24 2010 09:26PM

Comments

George - I work with a lot of young buyers whose parents are helping them buy their first home and FHA is always their best option.  With many of my clients, the kid wants to buy a house and have a roommate or two but can't qualify on their own so they get the Bank of Mom & Dad parents to help them qualify. 

One of the benefits I've discovere in working with this niche is that parents will often tell other parents and before long, I've got parents thanking me for getting their kids out of their house a home of their own.

Posted by Donne Knudsen, CalState Realty Services (Los Angeles & Ventura Counties in CA) over 7 years ago

George ~  This is very interesting information and I have had this come up a couple of times, but then things just did proceed further.  With FHA it looks like there may be an option here.  Just a quick question, what happens if the non-occupying person does a guarantee.  Would that change things? and if so, how?  Or is FHA option just the same a the "old" guarantee!

Posted by Joan Whitebook, Consumer Focused Real Estate Services (BHG The Masiello Group) over 7 years ago

George, maybe it's just me being tired on a Friday night, but there doesn't seem to be any point at all to a conventional non-occupying co-borrower loan.  Unless the co-borrower is an investor??  What am I missing?

Posted by Nick T Pappas, Madison & Huntsville Alabama Real Estate Resource (Assoc. Broker/Broker ABR, CRS, SFR, e-Pro, @Homes Realty Group, @HomesBirmingham & Providence Property Mgmnt, LLC Huntsville AL) over 7 years ago

Donne, I was laugh throughout your comment, and how "bank of  Mom & Dad" and "out of their house, you nailed it ....... LOL

Joan I am not sure what you mean by a guarantee.  A Both Borrower and Co-Borrower each assume 100% liability for the mortgage payment, so in reality they are each guaranteeing the mortgage.  If there is something else I am not familiar with it.

Nick, you did not miss anything, ant that it my point, it does not make any sense to do a Non-Occupying Co-Borrower Conventional Loan.

Posted by George Souto, Your Connecticut Mortgage Expert (George Souto NMLS #65149 FHA, CHFA, VA Mortgages) over 7 years ago

George,
Great information ! also please remember all buyers that Mortgage Insurance shall go up these days soon it was on Oct 4th or 5th?, I'm not sure about it, can buyers get honored if they start the transaction as on monday? take care.

Posted by Ray Saenz, Homes for Sale in Laredo, TX - Texas, Realtor (Exit Realty Laredo) over 7 years ago

George... I write about this a few times a year, because I think it's a great asset of FHA mortgages. I wish you post stuff like this in the FHA Mortgage Group, so I could feature it.  And to Nick.. that is George's point... there is no real benefit. I think the qualifying ratio is raised to 36% on the front end.. wow, what a great increase.. lol  

jeff belonger

Posted by Jeff Belonger, The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans ( Social Media - Infinity Home Mortgage Company, Inc) over 7 years ago

Great information George! I know there are many folks that do not know all the rules surrounding FHA loans.

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) over 7 years ago

Ray, FHA works off of the Case Number Date, so if the Lender can obtain a FHA Case Number before October 4th, then the loan can be under the old Guidelines, but if the Case Number is obtain on or after the 4th then it will be under the new Guidelines.

Jeff, your right no benefit there.  These days FHA provides more flexibility then Conventional Loans, but as the FHA Foreclosures continue to rise, they will probably start moving closer to some of the Conventional Guidelines, especially a long the lines of Ratio's and LTV's, in fact Lenders and Investors have started to do that on their own already.

Bill things seem to be changing so much, especially with Lenders and Investor creating their own layer of rules, that I am checking the Guidelines for updates and talking to my Underwriter all the time.  The last thing I want to do is submit a loan that does not have a chance, because of a recent Guideline change that I was not aware of yet.

Posted by George Souto, Your Connecticut Mortgage Expert (George Souto NMLS #65149 FHA, CHFA, VA Mortgages) over 7 years ago

Hi George -- You taught me something today.  I had no idea about these provisions and restrictions.  This post is a great example of why it is paramount for a buyer to partner with an exceptionally knowledgeable loan officer. 

Posted by Chris Olsen, Broker Owner Cleveland Ohio Real Estate (Olsen Ziegler Realty) over 7 years ago

Chris, every thing goes a lot smoother when the Buyer works with a good team, Realtor, Attorney, and Loan Officer. 

Posted by George Souto, Your Connecticut Mortgage Expert (George Souto NMLS #65149 FHA, CHFA, VA Mortgages) over 7 years ago

George,

Thank you for this well written interesting notice on an overlooked area of the FHA spread of loans.

Posted by Steven Cook (No Longer Processing Mortgages.) over 7 years ago

George: Thanks for the report. I appreciate your post! This is indeed a great program. Just one more instance how a great loan officer can help their borrower! Take are.

Posted by Paul McFadden, Pest Control, Seattle, WA. (Paratex) over 7 years ago

George,

Exactly. FHA has the better option in this hands down.

Posted by Esko Kiuru over 7 years ago

Steven you are welcome

Paul, thank you.  If we all share what we know then we are all in a better position to service our clients.

Esko, I feel the same way.

Posted by George Souto, Your Connecticut Mortgage Expert (George Souto NMLS #65149 FHA, CHFA, VA Mortgages) over 7 years ago

Great post.

You might mention that the 75% restriction is not waived on a multi-family even if the borrower and non occupying borrower are related.

I get that question a lot. Based on the area multi-families may be more prevalent.

 

Posted by Mark Robinson, Honesty, Integrity, Service (Geneva Financial, LLC) over 7 years ago

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