FHA will allow a co-signer that is not living in the house unlike conventional loans in which the borrower still needs to meet certain qualifying ratios even if they have a co-signer. This can be great for first time homebuyers. One thing that so many get confused no matter what type of loan they are applying for is that a co-signer with good credit can't overcome the bad credit of the primary borrower. Meaning that the co-signer with good credit can't get you a better priced loan.
On FHA loans, 100% of the co-signer's income can be used no matter how much money the borrower makes. This also can help the borrower to achieve the maximum fha loan limits depending on what county that they are buying in. Each county has different mortgage amounts. And by having this co-signer, this can help those borrowers that might have some income that they can't prove, knowing that they can still make the higher mortgage payment. One thing to keep in mind though is that the co-signer's debt is also used in this equation. If their debt is extremely high, this co-signer might not help the situation.
Key Reminder #1: The co-signer can currently have a FHA loan in their name. For some more information on this topic, please go to http://www.hud.gov/offices/hsg/sfh/ref/sfhp2-03.cfm
Key Reminder #2 : The co-signor must be a relative.
I love FHA flexibility.
I've used the non-occupant co-borrower several times for first time home buyers. I will admit that the parents are often reluctant to give financial info so I can qualify them in the beginning. I get comments like "Why do you need my information? It's my daughter that's buying the house?".
I tell all, "No they are not unless the two of you qualify together with both existing income and debt.
They come around. Some don't and I suspect it's because either their credit isn't so good or they wouldn't qualify.
Lenn.... glad to see that your clients had success with FHA loans in the past. They sometimes got a bad name from realtors because of the appraisals and because several lenders talked negative about them. Why? Because they either didn't know the FHA guidelines or because they weren't FHA approved. And another reason, because there is a little less paper work to go with subprime. What's funny, maybe just 3 to 4 pieces of extra paper with a FHA loan. Sad.
Nima.... the sad thing about this is that FHA loans should have never decreased. I would have bet that between 2000 - 2006, that at least 25% of the loans originated subprime should have been FHA. And maybe at least 5% of the loans originated as FNMA levels should have been FHA loans. That's a lot of clients that got rates that were higher than they should have received.
Jeff,
Thanks for the post. I sometimes need reminding of what different programs allow.
Hey Jeff,
With loan standards increasing, it's nice to have an option in FHA, I do have a question, FHA guidelines say if your subordinating a second there is no Max Cltv, my underwriter is lost on this guideline thinking there is a Cap, what do you think???
Thanks,
Tom Weiss
Great information, that added benefit will make FHA a good option for many.
I have not seen many FHA loans in the last couple of years but am expecting a lot more of them. I have my first client in a long time possibly doing one.
Tony.... I see so many loan officers make their clients think that co-signers can offset their credit with someone else's good credit. That part is sad...but this is usually not taught in the beginning, but learned by experience. Or just a good manager pointing this out.
John.... with so much out there and even though I know I know most products, refreshers and reminders are always key. I always like reading about them. Thanks for your input.
Gita..... you should be seeing more around now or soon. The problem with this is that they should have never left. But so many lenders pushed the subprime because it was a tad easier at times with a little less in paper work.
Tom.... this is a tough one. It actually depends on what kind of second. There is no max LTV unless.... I think there are a few exceptions out there and it comes down to the real scenario. I can't 100% help you here because I hardly come across this. If you want to call me tomorrow, I would be glad to help. One of my underwriter's actually worked for HUD at one point. thanks
Randy.... thanks. I think FHA is a great option for many reasons. It still won't be used as much because many lenders aren't even FHA approved. But they don't let the clients know this. They just steer them in the wrong direction that ends up hurting them.
good post - quick and simple!
David.... thanks. But in all honesty, it would be very hard to add anything else to this. It's straight to the point and nothing more.
Leah.... I agree, that many don't know about the benefit of FHA, and that is including lenders. It's ashame. thanks for the compliments.
Jeff,
I realize that this blog is old but Isnt it true that you can have a co-signor even on a refinance transaction? Which means this can help a lot of people who exceed 43% Back end Ratio.
Thanks for the great posts.
Dee
BRUCE.... Rest in Peace......
DEE..... beat you to the punchline. I wrote this on April 10th..... FHA -- Non-Occupant Co-Borrowers -- Now on refinances also....
What can I say, you are the Expert :) Keep the FHA topics coming.
Just want to add my compliments and thanks for this informative post. Also good comments from the community.
Sec 1-2D says that the non occupying co-borrower CAN have an existing loan in their name:
D. Non-Occupying Co-Borrower.
A non-occupying co-borrower on property being purchased with an FHA-insured mortgage as a principal residence by other family members may have a joint interest in that property as well as in a principal residence of their own with a FHA-insured mortgage. (See paragraph 1-8 B for additional information).
Did "I read that wrong?
DEE.... thanks for the compliment...
MICHAEL.... my pleasure and thanks for stopping by.
RON..... yes, you are 100% correct. Thanks for bring this up. Those can's and can not's can be so disruptive sometimes.
Has anything happened to make the "Kiddie Condo" FHA loan less flexible or attractive to obtain...I'm being told that underwriters do not want to back these types of loan any longer..has anyone heard of this or can elaborrate...Bruce , I also sent you a personal message on the subject..Any and all help greatly appreciated
Owen
Owen.... Bruce is no longer around. Not sure what you are getting from your lender or anyone else, but a kiddie condo is basically a non-occupant co-borrower that has to be a relative/family member. Other than that, it's basically the same as having a 2nd borrower on the transaction. You can e-mail me at jbelonger@ihmci.com Maybe I can help you. thanks, jeff
If I have a son who is purchasing a home and both his parents are to be non owner occupied co-borrowers and one has no credit scores is that acceptable on FHA loan?
Please Help :)
Jennifer.....
Please call me on my cell phone. 609-440-5133 I can also be reached at jbelonger@ihmci.com . The basic question is, yes, this could be done, but there are some details to this. Besides, I have a few questions on this. thanks