My credit is not good - but my co-signers credit is excellent - Yippie, I can buy & use FHA loans

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Mortgage and Lending with Social Media - Infinity Home Mortgage Company, Inc

FHA Loans - FHA Home Loans - FHA Mortgages

 

There will always be some sort of mortgage myth in our industry or a piece of information given by a loan officer that is misleading. What I am about to talk about is regarding FHA loans and a borrower using a co-signer to help them purchase their new home. We call this a non-occupant co-borrower type of loan.

 

 

 

Knowledge of FHA loans

Let's first talk about co-signers for mortgages, because this term is used loosely throughout the real estate industry. When doing a mortgage, a co-signer is much different than when buying a car. When buying a car, you can still have bad credit below normal standards and bring a co-signer into the mix to solidify the deal. On a mortgage, if the primary borrower doesn't fit the normal credit score requirements and or the credit criteria, then you can't use a co-signer to help you purchase or refinance. A co-signer is used only for the purposes of qualifying with more income. The main point, the good credit of a co-signer can't be to offset the bad credit of a primary borrower, it's not allowed.

Now, there is a difference between specific types of loan products when using a co-signer.  On a conventional loan, the primary borrower still needs to qualify with an income ratio, which is usually only about 6%-8% above the normal qualifying ratios of 28/36. In regards to an FHA mortgage, there is no minimum requirement. In many cases, the primary borrower wouldn't even need income, but this depends on the overall deal. As long as the primary borrower met the credit requirements and the credit scores. This kind of scenario is typically scene when doing a FHA kiddie condo loan, which can also be known as a FHA non-occupant co-borrower loan. This is when you have a college student buying a property and the parent(s) are co-signing. More details on FHA kiddie condo loans.

 

 

 

Summary : I had to bring this up because I just received a call from a borrower who has credit scores of 565 who was told by a large bank that they can't get a loan.  But if they get a co-signer with good credit, that they would be able to get a loan. Knowledge in regards to the basics of FHA loans is so important. To me, this is actually Mortgage 101.

In regards to the word co-signer, in the mortgage industry, this is referred to as a non-occupant co-borrower. As long as the person who is co-signing is a family member or a relative and they aren't living in the property. Hence why they are called a non-occupying co-borrower. And a FHA non occupant co borrower is much easier doing this with than a conventional loan. So it's a mortgage myth if one says that you can get a co-signer no matter how your credit is. Lastly, if the primary borrower has someone that will occupy the property with them and will be on the loan, they are known as a co-borrower.

 

 -- Update per Missy Caulk's comment # 8 - The co-signer, aka non-occupant co-borrower can have a primary home, even a home with a FHA mortgage on it. Meaning that the home does not have to be free and clear. It's considered a debt and is part of the qualifying ratios.

 

 

 

 

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For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags!

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For information about FHA myths & FHA rumors, please read : FHA Myths & Rumors

 

Copyright © 2010 by Jeff Belonger of Infinity Home Mortgage Company, Inc

 

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- FHA Loans - USDA Loans - VA Loans -

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- FHA Home Loans - Mortgages -

 

Experience & Knowledge at its BEST !!!

 

 

Follow me on:

Mortgage Myth Busters

 

______________________________________________________________________________________________________________

For more information on FHA loans, please go to this link. The FHA Expert

For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags!

HUD

 

For information about FHA myths & FHA rumors, please read : FHA Myths & Rumors

 

Copyright © 2011 by Jeff Belonger of Infinity Home Mortgage Company, Inc

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Re-Blogged 8 times:

Re-Blogged By Re-Blogged At
  1. Barbara-Jo Roberts Berberi, MA, PSA, TRC - Greater Clearwater Florida Residential Real Estate Professional 07/24/2010 06:10 AM
  2. Dan Edward Phillips 07/26/2010 02:01 AM
  3. Teri Eckholm 07/26/2010 08:27 AM
  4. Marchel Peterson 07/26/2010 11:44 AM
  5. Deborah "Dee Dee" Garvin 07/26/2010 11:56 AM
  6. Gene Riemenschneider 07/27/2010 09:00 AM
  7. Beverly Richardson, REALTOR 07/27/2010 10:14 AM
  8. Maya Thomas LLC, Broker 08/04/2010 07:07 AM
Topic:
Lending / Financial
Location:
New Jersey Gloucester County Glassboro
Groups:
Realtors®
Mortgages
All About Mortgages/Mortgage Networking
1st Time Buyers
The FHA Mortgage Group
Tags:
fha loans
fha home loans
fha loans florida
mortgage cosigners
fha non occupying coborrowers
fha loans new jersey
non occupant co borrowers

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Rainmaker
636,338
Don Sabinske
Don Sabinske, Sabinske & Associates Inc. - Zimmerman, MN
Sabinske & Associates Inc.

Bookmarked.  I run into this myth frequently.  Now, I have the solid information to pass along.  From the Myth Buster, Buster. 

Jul 22, 2010 11:48 PM #5
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Judi K Barrett
Judi Barrett~Integrity Real Estate Services~Idabel, Oklahoma - Idabel, OK
BA, Integrity Real Estate Services -IDABEL OK

Jeff,

Have only had a co-borrower on a purchase one time, it was for the income, not the credit score and it was on a usda loan.

I appreciate the information.

Thanks!

Jul 23, 2010 12:23 AM #6
Rainmaker
3,585,908
Gabe Sanders
Real Estate of Florida specializing in Martin County Residential Homes, Condos and Land Sales - Stuart, FL
Stuart Florida Real Estate

Jeff,

 

Great information.  As always I learn a lot from your posts.  Thanks.

Jul 23, 2010 12:44 AM #7
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Missy Caulk
Missy Caulk TEAM - Ann Arbor, MI
Savvy Realtor - Ann Arbor Real Estate

Good information on non-occupatant, co-borrower. Can the non occupant co-borrower be a mom or dad retired and own their home free and clear?

Not me, lol but had something come up yesterday.

Jul 23, 2010 01:35 AM #8
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Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

 

JENNIFER.... .  I guess it all depends on how long you have been selling and what market area. This type of loan can be more prevalent around colleges and universities. Read my link that I just posted about Kiddie Condo loans.  thanks

DON... .  what part of the myth do you run into frequently?  Thanks for sharing & stopping by.

JUDI.... . did you mean one co-signer ever?  I am sure you have had many co-borrower's that were purchasing before. Like husband and wfe? Boyfriend and girlfriend?  The wife and girlfriend would be co-borrowers.  thanks

GABE... . my pleasure and thanks for the compliment and for the support...

MISSY... . To answer your question, yes.  They can even own a home, which is something that I failed to mention or clarify. As long as the the primary borrower and all involved, qualified with all debts involved.  thanks for asking this question so I can add this in there, so it's more clear.

 

Jul 23, 2010 01:44 AM #9
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Missy Caulk
Missy Caulk TEAM - Ann Arbor, MI
Savvy Realtor - Ann Arbor Real Estate

Thanks!

Jul 23, 2010 02:11 AM #10
Rainmaker
97,735
Gerry Suarez Jr.
Mortgage Financial Group, Inc. - Mount Dora, FL
Expert Home Loan Advisor

Jeff,

Great post and a great job simplifying the dizzying maze of non-occupant co-borrower requirements in the FHA Handbook. The saddest part that must be added is the bottom line fact that FHA would probably allow that loan you used in your scenario, the same way FHA currently allows loans with minimum down to 500 scores. Good luck finding a lender to do it though!

Guidelines clearly state that FHA will allow a "co-signer" and the loan can be done as if that person was an occupying co-borrower. Regarding credit that means EACH borrower must pass credit score requirements. A strong borrower does not make up for a borrower with unacceptable credit.

So many details, and all of them are so important. I guess that why the FHA Handbook is as big as it is!

Again, great job busting that mortgage myth and making it make sense!

Gerry Suarez, Jr.

Your FHA Loan Pro!

Jul 23, 2010 02:16 AM #11
Rainer
72,591
Nick Pakulla
Nick Pakulla Mortgage Team Maryland, Virginia, District of Columbia - Rockville, MD
Nick Pakulla Mortgage Team, Lender in MD DC VA
Jeff - good post. It is amazing how these myths propagate, good to set the record straight!
Jul 23, 2010 02:31 AM #12
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Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans


MISSY... . my pleasure..

GERRY aka Thomas Mortgage... .  I would agree about those that have 500 credit scores, as long as they had 10% down. But I actually read one of the guidelines from a lender that does down to 580 credit scores and you can't have a non-occupant co-borrower. Keep in mind, lender overlays. I think any score under 620 would be heavily scrutinized, especially that of a co-signer. It makes sense to me.. But yes, so many details and when I hear a loan officer tell a borrower that you can have a co-signer, yet that primary borrower's credit is not FHA worthy, I cringe big time. No, you can't use a co-signer to help with a borrowers credit approval.  Hey, thanks for the polite compliment and input.

NICK... . we will always see some sort of myth... it will never stop. To much water cooler talk at the bars... lol Thanks for the compliment..

 

Jul 23, 2010 03:37 AM #13
Rainmaker
225,408
Tim Bradford
Cleveland, OH
NMLS 250013

Jeff, 

Great information.  Will do a reblog.   I have talked to too many buyers and Realtors that believe the Co-Signor/Co-Borrowers Credit will make up for the primary borrowers poor credit history.  

Thinking ahead, how will this play with the Lenders we use if FHA alters the Mortgage Insurance requirements on loans with Downpayment tied to Credit Scores?   Am I right in saying FHA presently does not have CS min?  However the Overlays from the investors we use do have the Min Scores.    

Jul 23, 2010 07:13 AM #14
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Barbara-Jo Roberts Berberi, MA, PSA, TRC - Greater Clearwater Florida Residential Real Estate Professional
Charles Rutenberg Realty - Palm Harbor, FL
Palm Harbor, Dunedin, Clearwater, Safety Harbor

Jeff - this is why it is so important for realtors to be working with great mortgage professionals!

Jul 24, 2010 06:09 AM #15
Rainmaker
154,755
Deborah "Dee Dee" Garvin
C2 Financial - San Diego, CA
C2 Financial

Jeff,  Great information to share with clients and agents.  Thanks for the ability to reblog!

Jul 26, 2010 11:54 AM #16
Rainmaker
642,241
Marchel Peterson
Results Realty - Spring, TX
Spring TX Real Estate E-Pro

Jeff, I have a client who has run in to complications because of the ever changing FHA rules.  I re-blogged and forwarded to them in the hopes that your information may help.

Jul 26, 2010 02:00 PM #17
Rainmaker
1,001,164
Bill Gassett
RE/MAX Executive Realty - Hopkinton, MA
Metrowest Massachusetts Real Estate

Jeff as usual an awesome job explaining this facet of an FHA loan and having a co-signer.

Jul 27, 2010 12:28 AM #18
Rainmaker
1,427,186
Gene Riemenschneider
Home Point Real Estate - Brentwood, CA
Turning Houses into Homes

Good post with good clarification on some important issues.  Thanks for the information.

Jul 27, 2010 09:01 AM #19
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Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

 

TIM... . I still hear people that think a co-signer will help with the primary's credit situation, hence why I wanted to write about this.  FHA does have a 500 credit and anything below that, they need 10%. In regards to your second question, I am not sure if I follow it 100%.  No matter if they raise the monthly mortgage insurance or add credit scores to it or for the down payment, credit will be credit. As we know, the bottom would be that you can't use the co-signers credit.  thanks

BARBARA JO... . I would agree...  but the question is, if you don't know who is a professional prior to working with them, when do you find out, when it's to late?  thanks

DEBORAH... . my pleasure and thanks for the kind compliments.

 

MARCHEL... .  it was nice to have spoken to you yesterday about your borrowers. The reason that the lender is using your borrower's wife's debt, even though she is not on the mortgage is because Texas is a community state.  But I had asked you if she had a job and good credit, you said yes.  Then I said, why aren't they using her income & credit. You said because the loan officer said she can't be on it because she had a bankruptcy over 2 yrs ago, close to 3 yrs.  Well, FHA states just 2 years as long as you have re-established credit, the appropriate credit scores, and that they qualify with the debt and income. Some lenders do have overlays and want 3 years... but HUD says 2 years...  find another lender then... thanks

 

BILL... .  thank you very much... and thanks for stopping by and for the compliment.

GENE... .  extremely important issues, because so many think co-signers can help with credit, even some loan officers.. which is bad.. ... and thanks for the compliment.

 

Jul 27, 2010 11:32 AM #20
Rainmaker
642,241
Marchel Peterson
Results Realty - Spring, TX
Spring TX Real Estate E-Pro

Hi Jeff, I put my client in contact with my favorite lender.  It is still tricky but it appears she may get it done.  Thanks for all your help with this.  Her lender being her Uncle was a bit of a complication but she was ready to talk to someone else rather than lose this house.

Jul 27, 2010 12:07 PM #21
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Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

 

MARCHEL..  good to hear and my pleasure.  But could you find out why it still might be a little tricky or appears to still be tricky?  Just curious, because maybe we all can learn something here.  Is it her credit?  When was her bankruptcy discharged?  Why did your loan officer say that it will still be tricky?  thanks

 

Jul 27, 2010 12:30 PM #22
Rainmaker
175,446
Maya Thomas LLC, Broker
Key West, Key Haven, Geiger, Sugarloaf, Cudjoe, Summerland - Key West, FL
Key West FL Historic Old Town Estates, Bungalows

So glad that you wrote about this!  I have this conversation often with buyers!  I re-blogged your post so that I can just send a llink to a buyer. 

Aug 04, 2010 07:08 AM #23
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Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

 

MAYA...  I am glad that I could help some.  And thanks for reblogging this post.  thanks

 

Aug 04, 2010 08:53 PM #24
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