FHA Qualification with Co-Borrowers Part 1

Many buyers with decent or even good credit need a little extra help qualifying for a home loan.

In many cases FHA has a GREAT solution to help!   FHA will allow a Co-Borrower to join the loan for qualification purposes, even if the Co-Borrower does not live in the home!

The fact that the co-borrower does not have to live in the home for an FHA Loan is an advantage that most other (low interest rate) loan categories do not allow.

Later in this article I will describe the guidelines and qualifications for this. For now, it is good to know that FHA leans toward YES for non-occupying Co-Borrowers whereas Conventional and VA guidelines make it extremely hard to qualify for the same exact situation.  

Now that we know that FHA has a good solution for many buyers, lets lay out the situations where this makes sense:

1. Often FHA qualification guidelines will not count portions of a buyer's income (such as commission or bonus income) if the buyer is a new employee.  From a common sense standpoint we know that there is enough income to comfortably make the monthly payments - but we can't count this income at this moment.  
2. Sometimes a buyer knows that their income will be increasing over the next year or two. Examples of this include medical doctors finishing a modestly paid internship in the next year or two - after which their income will increase substantially.  
3. Another common use for a non-occupying co-borrower on a FHA loan is when a spouse ( or fiance) is finishing their degree and do not have income that can be counted for qualification. They may have a job waiting for them 6 months from now, but we can't count this future income at this point in time.  
4. It is not at all uncommon for a non-occupying Co-Borrower to be utilized in a divorce situation. I have helped many families over the past 20 years where a mother ( or father)  is re-entering the workforce (post divorce) after having a substantial gap in employment to raise children. A non-occupying Co-Borrower works great!   Another great use for this concept  involves maintenance income. Sometimes FHA loan qualification guidelines do not allow very new maintenance income to be counted right away. Family members will often step in as a Co-Borrower.    

There are many other situations where non-occupying Co-Borrowers makes good sense. In all of these situations the main Borrower receives the SAME LOW RATE as if they were qualifying by themselves. No Penalties Here!!!  

First Time Buyers may also receive FULL MHDC First Time Buyer Cash Assistance with this concept (although we will consider this as a co-signor instead of co-borrower in most of these situations - please call me for details on this concept).

In my next post I will describe FHA Qualification Guidelines regarding who can be used ( and also who can NOT be utilized) as a Non Occupying Co-Borrower. There are a few loopholes here that can often be used to help a Buyer.