Ever wondered how you could help a family member or close friend buy a home even if you don’t intend to live there? That’s where FHA loans and non-occupant co-borrowers come into play. This article aims to provide a comprehensive guide on this topic. Let’s dive right in!

The FHA Loan Landscape

First off, FHA loans are Federal Housing Administration loans designed to help lower-income, lower credit, or first-time homebuyers secure a mortgage. These loans are insured by the federal government and generally have lower down payment requirements and more lenient credit score criteria than conventional loans. But what happens if you still can’t qualify alone? That’s where co-borrowers come into the picture.

Understanding Co-Borrowers

A co-borrower is someone who applies for a loan along with the primary borrower. The co-borrower’s income, assets, and credit score are all taken into account when determining loan qualification. But did you know there are different types of co-borrowers? For FHA loans, a special kind exists called the non-occupant co-borrower.

Digging Deeper into Non-Occupant Co-Borrowers

A non-occupant co-borrower is someone who signs the loan documents and takes on the financial responsibility of the loan but doesn’t live in the property. The typical candidates are parents, close friends, or other family members.

Pros and Cons of Having a Non-Occupant Co-Borrower

Having a non-occupant co-borrower can offer advantages like a larger loan amount or a expanded eligibility. However, this arrangement also has its downsides such as shared financial responsibility.

Benefits

• Higher Loan Amount potential
• Expanded eligibility for the primary borrower

Risks

• Shared Financial Liability
• Risk of Default Affecting Both Parties

Requirements for Non-Occupant Co-Borrowers

Lenders usually look for financial stability and a credit score of at least 500. The exact criteria can vary, but both the primary and non-occupant co-borrowers should have stable income sources and acceptable credit scores.

Stable income would be the ability to show proof of income/employment over the last 2 years, and current employment.

Minimum credit score for an FHA loan is 500.

Responsibilities of Non-Occupant Co-Borrowers

It’s crucial to understand that as a non-occupant co-borrower, you’re not just a name on a paper; you share both financial and legal responsibilities.

Common Scenarios for Using Non-Occupant Co-Borrowers

First-time homebuyers and those with lower income commonly use non-occupant co-borrowers. These scenarios often need extra financial padding, and that’s where a non-occupant co-borrower steps in.

Having a non-occupying co-borrower is most commonly used when the primary borrower has unverifiable income, or a high debt to income ratio.

How to Add a Non-Occupant Co-Borrower

You’ll submit a separate application to the primary borrower’s lender.

You’ll provide supporting documents like:

• Pay stubs
• W2s
• ID
• etc.

The lender will send both you and the primary borrower a full loan document package to review and e-sign.

Be sure to pay close attention to the Loan Estimate which breaks down the estimated payment, closing costs, escrows (for taxes and insurance) and loan terms.

Case Study: Successful Use of FHA Non-Occupant Co-Borrower

Let’s consider Mark and his mother Kim, who successfully used this approach to acquire Mark’s first home. The case illustrates how a non-occupant co-borrower can make homeownership attainable.

The Challenge:

Mark is your classic young adult striving for that cornerstone of the American Dream: homeownership. He’s financially responsible with established credit, but there’s a hiccup. Mark’s main source of income is tip-based, earned under the table at the restaurant where he’s been a loyal employee for 3 years. While this may offer him flexibility and solid cash flow, it presents a roadblock when it comes to verifying income for a home loan.

His favorite mortgage lender was optimistic about Mark’s prospects but recommended that the absence of verifiable income could be a make-or-break factor. That’s where a non-occupant co-borrower could tip the scale.

The Solution:

Mark didn’t hesitate to bring this dilemma to his parents. The family collectively recognized the value in Mark owning property at his age, especially given the long-term benefits such as wealth accumulation and tax incentives. Kim, Mark’s mother, emerged as the ideal candidate to become a non-occupant co-borrower. She has a well-established income history, limited debt, and a vested interest in Mark’s financial future.

The Strategy:

Kim’s financial credentials provided the necessary yin to Mark’s yang. She was essentially able to vouch for Mark’s financial responsibility in a way that satisfied lender requirements. This co-borrowing approach is not novel; it’s backed by FHA which allows non-occupant co-borrowers to help secure a mortgage. By leveraging Kim’s income, Mark could now substantiate his loan application, increasing his chances of approval.

The Application and Approval:

After extensive paperwork, which included credit checks, background checks, and the compilation of Kim’s financial history, the application was submitted. It’s critical to note that this isn’t a shortcut but a legitimate way of proving to lenders that the borrower is reliable. Within weeks, Mark was given the green light. The loan was approved, and he could finally purchase his first home.

The Results:

Mark is now a proud homeowner, reaping the benefits of equity and the freedom that comes with it. Kim also gains peace of mind knowing that her financial stability has enabled her son to achieve a significant milestone. Moreover, this arrangement has established a positive credit impact for both parties involved.

The Takeaway:

Sometimes a traditional approach doesn’t accommodate modern complexities. The non-occupant co-borrower strategy is not just a loophole but a testament to the evolving nature of financial planning and familial support. The collaboration between Mark and Kim demonstrates that homeownership is attainable when we think outside the conventional box.

The Happy Ending:

And so, Mark sits in his own living room, free from the bounds of rent, surrounded by walls he can call his own. The experience has brought him and his mother even closer, strengthening their bond through a joint financial venture that succeeded brilliantly. Mark’s case is a shining example, a beacon for many young adults who might find themselves in similar circumstances, illuminating the path to successful homeownership through smart, strategic planning.

What Mark and Kim accomplished is not just a purchase but an investment in the future, one that promises to yield returns in happiness, stability, and financial growth. Truly, a happy ending for a tale of modern-day financial wizardry.

Alternative Options

If a non-occupant co-borrower isn’t suitable for you, there are other options like no income verification loans if you have strong credit and assets.

Conclusion

Whether you’re a first-time homebuyer looking for ways to fortify your loan application, or a financially stable individual considering helping someone else, an FHA loan with a non-occupant co-borrower offers an attractive path to homeownership. With the right planning, a clear understanding of responsibilities, and an eye out for potential pitfalls, this could be the key that unlocks that elusive door to a home.

5 Unique FAQs About FHA Non-Occupant Co-Borrowers

1. Can a non-occupant co-borrower be removed later?
   • Yes, they can be removed in the future by refinancing once the primary borrower is eligible on their own.
2. Do non-occupant co-borrowers have to be family members?
   • No. But if they are not family, the maximum loan to value ratio is 75%
3. How does being a non-occupant co-borrower affect my credit score?
   • As long as payments are made on time, the mortgage tradeline will help strengthen your credit profile over time.
4. What happens if the primary borrower defaults on the loan?
   • The non-occupant co borrower will be equally, negatively effected.
5. Can non-occupant co-borrowers be used for loans other than FHA?
   • Yes, this is allowed on fannie mae and freddie mac (conventional) loans as well.

In invite you to reach out.

Get your questions answered.

We have been very successful with getting borrowers approved even when other lenders said it wasn’t possible.

If for some reason we cannot help, we’ll do our very best to give you a game plan to set you up to accomplish your goals.