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Mortgages With A Non-Occupying Co-Borrower

By George Souto

Mortgage and Lending with George Souto NMLS #65149 FHA, CHFA, VA Mortgages NMLS #65149

July 21, 2013 07:01 PM

Even with all the recent negative changes by FHA, there will continue to be mortgage needs which FHA Mortgage will be the best option. One of those situations is Mortgages With A Non-Occupying Co-Borrower. This occurs when a Borrower needs to have a Co-Borrower in order to qualify for a mortgage, but the Co-Borrower will not be living in the property. This is the case fairly often with single First Time Homebuyers, and FHA insured loans are really the only option for these Borrowers.

While conventional loan products have a provision for Non-Occupying Co-Borrowers, it is not a very good one, and does not really provide an advantage to do so. When a Non-Occupying Co-Borrower is used to qualify for a conventional mortgage, the Occupying Borrower will still need to be able to qualify for the mortgage solely based on his or her own income. Furthermore:

The Total-Debt-To-Income Ratio cannot exceed 43%
Loan-To-Value (LTV) cannot be higher than 90%
And at least 5% of the Downpayment has to be from the Occupying Borrower's own funds.

As you can see having a Non-Occupying Borrower on a Conventional Loan does not provide the Borrower with much help, since the Borrower still needs to qualify on just his or her income. The only advantage that I know of for having a Non-Occupying Co-Borrower on a Conventional Mortgage is for the purpose of being able to use their assets.

As a result the only true option for a Borrower that cannot qualify to purchase a property on his or her own income is FHA. FHA not only allows for the assets from the Non-Occupying Co-Borrower to be used, but the income of the Non-Occupying Co-Borrower as well.

FHA Guidelines Section 606.02 Non-Occupying Owner Borrowers, states:

"When there are two or more borrowers, but one or more will not occupy the property as a principal residence, the maximum mortgage is limited to a 75% LTV. However, maximum financing (as described in sections 605 to 605.03) is available for borrowers related by blood, marriage or law (spouses, parent-child, siblings, stepchildren, aunts-uncles/nieces-nephews, etc.), or for unrelated individuals that can document evidence of the family-type longstanding and substantial relationship not arising out of the loan transaction."

So if you have a Non-Occupying Owner Borrower who is not related to the Occupying Borrower, they need to have a 25% downpayment.
It the Non-Occupying Owner Borrower is related to the Occupying Borrower, then they only need to have a 3.5% downpayment.
Both the Non-Occupying Owner Borrower's income & debts, and the Occupying Borrower's income & debts are used in qualifying for the FHA Mortgage.

I would love to see Convention Mortgage Products adopt the same or similar guidelines for Mortgages With A Non-Occupying Co-Borrower as FHA, but until they do, FHA will continue to be the only true option for Borrower that cannot qualify to purchase a property on his or her own income.

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Info about the author:

George Souto NMLS# 65149 is a Loan Officer who can assist you with all your FHA, CHFA, and Conventional mortgage needs in Connecticut. George resides in Middlesex County which includes Middletown, Middlefield, Durham, Cromwell, Portland, Higganum, Haddam, East Haddam, Chester, Deep River, and Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com

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Drick Ward Property Management / Broker Assoc

NEPTUNE REALTY - Virginia Beach, VA

"RealtorDrick" - Experienced Representation

Thank you very much for the information

Jul 21, 2013 11:03 PM

Gary L. Waters Broker Associate, Bucci Realty

Bucci Realty, Inc. - Melbourne, FL

Eighteen Years Experience in Brevard County

I just had one close like this a few months ago. The occupying buyer was selling his old house (which he sold one month after we closed here). It worked and was a first for me.

Jul 21, 2013 11:13 PM

George Souto

George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT

Your Connecticut Mortgage Expert

Joe, even though FHA is not a great option in most cases today, it still fills a need that conventional loan products are not really a good option for, and Non-Occupying Co-Borrower is one of them. I run into this fairly often.

Lenn I would love to hear the reason someday why with 20% down, and the Buyer being able to qualify on her own there was a need for Co-Borrowers. That would make a good blog.

Tara, unfortunately you are correct, there are LO's that will not direct a Borrower to other LO's that may have a better option for them. If I don't have what fits a Borrowers need I refer them to someone who does. In the end it always ends up in more business for me, because Borrowers remember.

Gita I hope it proves useful for you.

Wayne and Jean and I am always available to provide further information in case it is needed even if they are from out of state and I can't do the loan.

Barbara that was excellent advice on your part. I will be doing a series of blogs on Gift Funds as well some time this week, and you will see Gift Funds can be tricky if the Donor is not related to the Borrower.

Joan, I am surprised that you have not had this situation, because it is fairly common for me. Just goes to show how things are different from market to market.

Fernando thank you. And I hope this info does work out for you Buyer Agents.

Michael you are so right. Assets always seem to be a challenge for First Time Buyers.

Dick you are welcome

Gary so the next time you will be a pro at it :)

Jul 21, 2013 11:57 PM

Harry F. D'Elia III

WEDO Real Estate and Beyond, LLC - Phoenix, AZ

Investor , Mentor, GRI, Radio, CIPS, REOs, ABR

Thanks for sharing the information. Just another way to close a deal.

Jul 22, 2013 12:05 AM

Michele Peterson

Sellstate Realty First - Roseville, CA

Sellstate Realty First

Great information to help with financing questions for buyers in the field. As a realtor, I will give the buyers an overview of a "few" options, but let the expert - lender - provide additional options, details, and determine the best option based on the buyers credit, finances and needs.

Jul 22, 2013 01:04 AM

Edward & Celia Maddox

The Celtic Connection Realty - Queen Creek, AZ

EXPERIENCE & INTEGRITY - WE TAKE THE HIGH ROAD

Some very good detailed information. Thanks for sharing with us on Active Rain.

Jul 22, 2013 01:12 AM

George Souto

George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT

Your Connecticut Mortgage Expert

Harry, this is a good option for those that need it. Don't know how I would feel about putting myself on the hook for that kind of money as a Non Occupying Co-Borrower, but parents many times are willing to do that for their kids.

Michele, that is a good practice to have. If we all stick to our end of the business, deals get done much quicker. Going to be doing a blog on that soon.

Edward and Celia you are welcome.

Jul 22, 2013 02:00 AM

Carla Muss-Jacobs, RETIRED

RETIRED / State License is Inactive - Portland, OR

This is great information and a reason why I read things here on ActiveRain. Of late, I've had several buyers wanting to have their parents put up the down payment. That's limiting, and this is one way to go about the gift funds, etc.

Jul 22, 2013 04:18 AM

David Popoff

DMK Real Estate - Darien, CT

Realtor®,SRS, Green ~ Fairfield County, Ct

George you are always posting such great informative articles, 5 stars on this one, a topic that comes up regularly.

Jul 22, 2013 04:42 AM

George Souto

George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT

Your Connecticut Mortgage Expert

Carla, I agree it is a good option. But I have been surprised by the number of loans I have done through the years that the parents have agreed to be Co-Borrowers on their kids mortgage. I have even done a few where the parents were the Buyers, but did not have enough income to qualify on their own, and one of the kids (with a job) was a Co-Borrower. That one to me is a little more risky because the child will get married and want to purchase a place of their own, and now they have their parents mortgage counting against their DTI. I always make sure I explain that several times to them.

David thank you. That is really kind of you to say that.

Jul 22, 2013 05:09 AM

Gary Frimann, CRS, GRI, SRES

Eagle Ridge Realty / Signature Homes & Estates - Gilroy, CA

REALTOR and Broker

Goerge, does it not have to do not only qualifying with income, but lack of a sufficient down payment as well?

Jul 22, 2013 06:05 AM

George Souto

George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT

Your Connecticut Mortgage Expert

Gary, lack of a down payment can be handled through Gift Money which does not require the Donor to be on the loan, but in order to use the income they have to be on the loan, so that is the difference. Though not everyone is an acceptable Donor, and I will be covering that in another blog this week.

Jul 22, 2013 07:10 AM

Jane Chaulklin-Schott

TEAMCONNECT REALTY - (407) 394-9766 - Orlando, FL

TeamConnect Luxury Homes - Orlando, Florida, 32836

George ~ great information to give our buyers/borrowers in need and their respective co-borrower(s). Have bookmarked and also printed out your post; will put on my bedstand. After prayers this evening, I will reread when I have time to indelibly imprint. Perhaps one of my areas, as a Realtor, which needs extra attention and time is the Mortgage Loan field.

Jul 22, 2013 07:38 AM

George Souto

George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT

Your Connecticut Mortgage Expert

Jane glad that you feel that this information is worth hanging on to and give to your Buyers. But when you print it out may picture prints out with it also, and that is cruel and unusual punishment to look at just before going to sleep :) :) :)

Jul 22, 2013 08:40 AM

Ginny Gorman

RI Real Estate Services ~ 401-529-7849~ RI Waterfront Real Estate - North Kingstown, RI

Homes for Sale in Southern RI and beyond

George great mortgage info on these non-occupying borrowers...I knew about it but not the particulars...immensely informative.

Jul 22, 2013 09:27 AM

Jane Chaulklin-Schott

TEAMCONNECT REALTY - (407) 394-9766 - Orlando, FL

TeamConnect Luxury Homes - Orlando, Florida, 32836

Hey George ~ (#23) When printed out, the image that printed was a large image of FHA VS FANNIE MAE. Now that is cruel and unusual punishment before going to sleep. But then, what do I know? As I said the mortgage field is a weak spot for me. And no, no picture of you printed out. :) But George, I have to admit - probably will be successful on the imprinting. Probably A+ !! Funny, huh? I wanted to learn ~

Jul 22, 2013 10:03 AM

Debbie Reynolds, C21 Platinum Properties

Platinum Properties- (931)771-9070 - Clarksville, TN

The Dedicated Clarksville TN Realtor-(931)320-6730

George, There is a good reason to use an FHA loan but this may be one of the few remaining ones. I keep thinking that they will lift some of the restrictions but I guess I had better not hold my breath.

Jul 22, 2013 12:50 PM

Fred Griffin Florida Real Estate

Fred Griffin Real Estate - Tallahassee, FL

Licensed Florida Real Estate Broker

I was talking with a Loan Officer the other day at a Realtor Social. I asked her what she thought about FHA, with the Lifetime MIP requirement and so forth. She mentioned this same thing you are blogging about - that FHA is the go-to Loan for someone who needs a Co-Borrower that won't be living in the house.

Jul 22, 2013 01:12 PM

Praful Thakkar

LAER Realty Partners - Burlington, MA

Metro Boston Homes For Sale

George, as much as FHA is getting 'expensive' this is something very helpful in some unique circumstances. Thanks for sharing - we all learn something new here - and sometimes learn lot more from someone like you.

Jul 22, 2013 03:38 PM

George Souto

George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT

Your Connecticut Mortgage Expert

Ginny glad you found it so. You always know how to get a hold of me if you need any further explanation.

Jane even though I can not do loans in your state, if you have a question on any loan produces or guidelines you are welcome to call me any time.

Debbie you are right this is one of the few advantages for an FHA Loan that is still left. Hopefully the light will come on and they will start to make corrections to what they have done.

Fred looks like you got someone locally that is on top of things and can provide you with good advice. There are LO's out there that still do not know the difference between FHA and Conventional loans on this issue.

Praful, thank you for saying that, I really appreciate it.

Jul 23, 2013 10:21 AM