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FHA Non-Occupant Co-Borrowers Guidelines in Florida

FHA loans present an opportunity for individuals to purchase a home in Florida with more lenient financial prerequisites. This makes them particularly beneficial for young people, students, and families.

However, if you encounter difficulties qualifying for this loan, having an FHA non-occupant co-borrower might be the ideal solution to achieve your goal of owning a home.

Let's delve deeper into how an FHA non-occupant co-borrower for your Florida home could be the answer you've been seeking.

Does The FHA Allow Non-Occupying Co-Borrowers?

FHA loans, which are administered through the Federal Housing Administration and backed by the government, are commonly utilized by first-time homebuyers to acquire their primary residence.

Nevertheless, it's important to note that FHA loans cannot be used to finance investment or vacation properties.

While the requirement of residency is not exclusive to non-conforming loans, FHA loans stand out by allowing non-occupant co-borrowers.

Leveraging a non-occupying co-borrower can significantly simplify the qualification process for an FHA loan, providing an advantageous twist to this financing option.

Co-borrowing presents a relatively distinctive option available to FHA and conventional loan homebuyers.

The FHA offers the flexibility for another borrower, who won't reside on-site, to co-sign on an FHA loan. When applying for a mortgage with a non-occupying co-borrower, the lender assesses the combined income, liabilities, assets, and credit scores of both borrowers.

Including a non-occupying co-borrower in the underwriting process often enhances the chances of approval for the occupying borrower.

Typically, non-occupying co-borrowers have higher income or better credit scores, which can boost the occupying borrower's likelihood of achieving homeownership.

FHA loan words on notepad and pen

FHA Guidelines For Non-Occupying Co-Borrowers

An added benefit of the FHA loan is the option for a low down payment, where you may only need to put down 3.5% on the mortgage, depending on your borrower qualifications.

However, if you wish to include a non-occupying co-borrower in your application, they must be considered a 'family member' according to the FHA's definition. Otherwise, a larger down payment may be required.

The FHA recognizes the following relationships as qualifying for family member status:

  • Child, parent, or grandparent
  • Step-parent or step-grandparent
  • Foster parent or foster grandparent
  • Spouse
  • Domestic partner
  • Adopted child
  • Foster child
  • Brother, step-brother
  • Sister, step-sister
  • Aunt or uncle
  • Son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law

If the non-occupying co-borrower does not meet the family member criteria, a larger down payment is mandatory.

Generally, the loan-to-value (LTV) ratio is capped at 75% when the co-borrower is not a family member or if a family member is selling the property to another family member, necessitating a 25% down payment.

Regardless of familial status, a non-occupying co-borrower must either be a U.S. citizen or have a principal residence in the U.S.

Moreover, the co-borrower must meet specific eligibility requirements concerning credit score, debt-to-income ratio (DTI), and income.

Although there isn't a defined limit to the number of co-borrowers that can be added to the loan, the application can become more intricate and involved with each additional party included.

FHA Loan Co-Signer Vs. Non-Occupant Co-Borrower: Understanding The Difference

If you're familiar with the concept of a co-signer, you might wonder what sets a non-occupant co-borrower apart. It's essential to understand the key distinctions between the two roles.

A co-signer on an FHA loan doesn't have any ownership interest in the property. Although they are obligated on the mortgage note, they bear no liability for repaying the debt.

In contrast, a co-borrower is required to assume title to the property at settlement and becomes obligated on the mortgage note.

During the closing process, the co-borrower must sign all the security instruments, making the new home firmly part of their financial responsibilities.

Being a co-borrower involves more extensive responsibilities, making it challenging to find someone willing to commit to this level of financial obligation.

Why Use A Non-Occupant Co-Borrower?

Incorporating a non-occupant co-borrower into your FHA loan application may present some obstacles, but the potential benefits can make it a worthwhile endeavor.

This is particularly true for young homebuyers who have family members willing to assist. By having a non-occupant co-borrower, you can secure more affordable housing costs, making the dream of homeownership more attainable.

Moreover, individuals burdened with significant student loan debt or blemishes on their credit report can find solace in the presence of a creditworthy co-borrower on their application.

The inclusion of such a co-borrower has the potential to unlock lower interest rates, providing much-needed relief to your budget and making mortgage payments more manageable.

With a non-occupant co-borrower on your side, you not only increase your chances of loan approval but also gain access to potential financial advantages that can significantly impact your long-term financial well-being.

The collaboration with a responsible co-borrower can lead to improved loan terms, making homeownership an achievable and beneficial step on your journey to financial stability and independence.

Non-Occupant Co-Borrowers for Conventional Loans

Non-occupant co-borrowers are permitted for both Fannie Mae and Freddie Mac conventional home loans, providing an advantageous option for prospective homebuyers seeking additional support to qualify for their mortgage.

With Fannie Mae and Freddie Mac, eligible non-occupant co-borrowers can be family members, such as parents, grandparents, siblings, or children, among others, who are willing to co-sign on the loan application.

These co-borrowers contribute their financial strength and creditworthiness to the application, which can increase the chances of loan approval and potentially lead to more favorable loan terms, including lower interest rates and reduced down payment requirements.

By harnessing the combined resources of the occupying borrower and the non-occupant co-borrower, Fannie Mae and Freddie Mac offer a pathway for aspiring homeowners to overcome financial challenges and fulfill their homeownership aspirations.

LTV Requirements When a Loan Has a Non-Occupant Co-Borrower

For an FHA loan with a non-occupant co-borrower, the Loan-to-Value (LTV) restrictions differ based on whether the co-borrower is a family member or a non-family member.

For a Family Member Non-Occupant Co-Borrower

  • The maximum LTV allowed is typically up to 96.5%.

  • This means that the occupying borrower can borrow up to 96.5% of the property's appraised value or the sales price, whichever is lower, with the assistance of the family member non-occupant co-borrower.

For a Non-Family Member Non-Occupant Co-Borrower

  • The maximum LTV allowed is up to 75%.

  • Similar to the family member co-borrower, the occupying borrower can borrow up to 75% of the property's appraised value or the sales price, whichever is lower, when a non-family member serves as the non-occupant co-borrower.

The higher LTV of 96.5% for family members means that you can secure the mortgage with a down payment as low as 3.5% of the property's appraised value or the sales price, whichever is lower.

This reduced down payment requirement makes homeownership more accessible and affordable.

The higher LTV allows you to borrow a larger portion of the property's value, which can translate into a higher buying power.

This means you can potentially consider properties with a higher price range while still being able to put down a relatively smaller down payment.

Does a Non-Occupant Co-Borrower Need To Be On The Title?

In a conventional loan scenario, a non-occupant co-borrower is considered a borrower and is obligated to sign the loan documents.

However, they do not necessarily need to be listed on the property title.

In contrast, for FHA loans, non-occupant co-borrowers are required to be both on the property title and the mortgage.

This distinction in the two loan types highlights that while both types of loans allow non-occupant co-borrowers, their level of involvement and responsibility may vary.

In conventional loans, the co-borrower's presence is primarily on the loan side, whereas in FHA loans, they play a more comprehensive role by being on both the title and the mortgage.

Is a Non-Occupant Co-Borrower Allowed On a Cash-Out Refinance?

Unfortunately, for FHA-insured mortgages, the answer is no.

According to FHA guidelines, any co-borrower or co-signer being added to the note for a cash-out refinance must be an occupant of the property securing the new mortgage.

The purpose of the cash-out refinance is not to use non-occupant co-borrowers or co-signers to meet FHA's credit underwriting guidelines.

This restriction ensures that those added to the loan have a direct interest and involvement in the property being refinanced.

As a result, non-occupant co-borrowers or co-signers are not allowed on FHA cash-out refinances.

Bottom Line

In Florida, FHA non-occupant co-borrowers can be a valuable resource for aspiring homebuyers seeking financial assistance to qualify for an FHA-insured loan.

With the support of a creditworthy non-occupant co-borrower, borrowers may enjoy more favorable loan terms, lower down payment requirements, and improved approval chances.

However, it's essential to adhere to FHA's specific guidelines for non-occupant co-borrowers, including ensuring their familial relationship to the occupying borrower and their active involvement in the mortgage application.

Remember that while non-occupant co-borrowers are allowed in FHA loans, they must be on both the title and the mortgage.

Additionally, for a cash-out refinance, FHA does not permit the inclusion of non-occupant co-borrowers.

By staying informed and working closely with knowledgeable mortgage professionals like MakeFloridaYourHome, homebuyers in Florida can navigate the FHA non-occupant co-borrower process successfully and make their homeownership dreams a reality.

With over 50 years of mortgage industry experience, we are here to help you achieve the American dream of owning a home. We strive to provide the best education before, during, and after you buy a home. Our advice is based on experience with Phil Ganz and Team closing over One billion dollars and helping countless families.

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