FHA Non-Occupying Owner Borrower Mortgage

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

Quite often First Time Homebuyers have a need for someone else to be on a mortgage with them in order to qualify to purchase a home.  While conventional loan products have a provision for this, it is not a very good one, and do not really provide an advantage to do so.  The only true option for a Borrower that cannot qualify to purchase a property on his or herr own is FHA.  FHA Non-Occupying Owner Borrower Mortgages have a couple of options.

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.

As stated in the beginning conventional loans also have a provision by which there can be a Non-Occupying Co-Borrower, but there is no advantage to doing so.  This is because when a Non-Occupying Co-Borrower is used in qualifying for a conventional mortgage, the Occupying Borrower still needs 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 Borrowers own funds.

So this leads to the question, why would anyone take on the financial obligation for a mortgage, if their income cannot assist the Occupying Borrower in qualifying for that mortgage?  I for one fail to see any sense in doing that, and therefore to the conclusion that the only viable option a FHA Non-Occupying Borrower Mortgage.


Info about the author:

George Souto 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, gsouto@mccuemortgage.com, or visit my McCue Mortgage Homepage.

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 Info about the author:

George Souto NMLS# 65149 is a Loan Originator who is licensed in #CT, #RI, #MA, #NH, & #FL and can assist you with all your #FHA, #Conventional, #VA, #USDA, and #State Bonded Progam #mortgage needs in #CT, #RI, #MA, #NH, & #FL. George resides in Middlesex County which includes #Middletown, #Old Saybrook, #Middlefield, #Durham, #Cromwell, #Portland, #Higganum, #Haddam, #East Haddam, #Moodus, #Chester, #Deep River, and #Essex. George can be contacted at (860) 573-1308 or souto@snet.net


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Donne Knudsen
Los Angeles & Ventura Counties in CA - Simi Valley, CA
CalState Realty Services

George - I work with a lot of young buyers whose parents are helping them buy their first home and FHA is always their best option.  With many of my clients, the kid wants to buy a house and have a roommate or two but can't qualify on their own so they get the Bank of Mom & Dad parents to help them qualify. 

One of the benefits I've discovere in working with this niche is that parents will often tell other parents and before long, I've got parents thanking me for getting their kids out of their house a home of their own.

Sep 24, 2010 03:38 PM #1
Joan Whitebook
BHG The Masiello Group - Nashua, NH
Consumer Focused Real Estate Services

George ~  This is very interesting information and I have had this come up a couple of times, but then things just did proceed further.  With FHA it looks like there may be an option here.  Just a quick question, what happens if the non-occupying person does a guarantee.  Would that change things? and if so, how?  Or is FHA option just the same a the "old" guarantee!

Sep 24, 2010 03:45 PM #2
Nick T Pappas
Assoc. Broker/Broker ABR, CRS, SFR, e-Pro, @Homes Realty Group, @HomesBirmingham & Providence Property Mgmnt, LLC Hun... - Huntsville, AL
Madison & Huntsville Alabama Real Estate Resource

George, maybe it's just me being tired on a Friday night, but there doesn't seem to be any point at all to a conventional non-occupying co-borrower loan.  Unless the co-borrower is an investor??  What am I missing?

Sep 24, 2010 03:46 PM #3
George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Donne, I was laugh throughout your comment, and how "bank of  Mom & Dad" and "out of their house, you nailed it ....... LOL

Joan I am not sure what you mean by a guarantee.  A Both Borrower and Co-Borrower each assume 100% liability for the mortgage payment, so in reality they are each guaranteeing the mortgage.  If there is something else I am not familiar with it.

Nick, you did not miss anything, ant that it my point, it does not make any sense to do a Non-Occupying Co-Borrower Conventional Loan.

Sep 24, 2010 04:34 PM #4
Ray Saenz
Exit Realty Laredo - Laredo, TX
Homes for Sale in Laredo, TX - Texas, Realtor

Great information ! also please remember all buyers that Mortgage Insurance shall go up these days soon it was on Oct 4th or 5th?, I'm not sure about it, can buyers get honored if they start the transaction as on monday? take care.

Sep 24, 2010 05:17 PM #5
Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

George... I write about this a few times a year, because I think it's a great asset of FHA mortgages. I wish you post stuff like this in the FHA Mortgage Group, so I could feature it.  And to Nick.. that is George's point... there is no real benefit. I think the qualifying ratio is raised to 36% on the front end.. wow, what a great increase.. lol  

jeff belonger

Sep 24, 2010 05:46 PM #6
Bill Gassett
RE/MAX Executive Realty - Hopkinton, MA
Metrowest Massachusetts Real Estate

Great information George! I know there are many folks that do not know all the rules surrounding FHA loans.

Sep 25, 2010 12:58 AM #7
George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Ray, FHA works off of the Case Number Date, so if the Lender can obtain a FHA Case Number before October 4th, then the loan can be under the old Guidelines, but if the Case Number is obtain on or after the 4th then it will be under the new Guidelines.

Jeff, your right no benefit there.  These days FHA provides more flexibility then Conventional Loans, but as the FHA Foreclosures continue to rise, they will probably start moving closer to some of the Conventional Guidelines, especially a long the lines of Ratio's and LTV's, in fact Lenders and Investors have started to do that on their own already.

Bill things seem to be changing so much, especially with Lenders and Investor creating their own layer of rules, that I am checking the Guidelines for updates and talking to my Underwriter all the time.  The last thing I want to do is submit a loan that does not have a chance, because of a recent Guideline change that I was not aware of yet.

Sep 25, 2010 05:58 AM #8
Chris Olsen
Olsen Ziegler Realty - Cleveland, OH
Broker Owner Cleveland Ohio Real Estate

Hi George -- You taught me something today.  I had no idea about these provisions and restrictions.  This post is a great example of why it is paramount for a buyer to partner with an exceptionally knowledgeable loan officer. 

Sep 28, 2010 12:37 PM #9
George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Chris, every thing goes a lot smoother when the Buyer works with a good team, Realtor, Attorney, and Loan Officer. 

Sep 28, 2010 01:54 PM #10
Steven Cook
No Longer Processing Mortgages. - Tacoma, WA


Thank you for this well written interesting notice on an overlooked area of the FHA spread of loans.

Sep 29, 2010 09:41 AM #11
Paul McFadden
Paratex - Seattle, WA
Pest Control, Seattle, WA.

George: Thanks for the report. I appreciate your post! This is indeed a great program. Just one more instance how a great loan officer can help their borrower! Take are.

Oct 02, 2010 02:45 AM #12
Esko Kiuru
Bethesda, MD


Exactly. FHA has the better option in this hands down.

Oct 02, 2010 07:38 AM #13
George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Steven you are welcome

Paul, thank you.  If we all share what we know then we are all in a better position to service our clients.

Esko, I feel the same way.

Oct 06, 2010 03:21 AM #14
Mark Robinson
Geneva Financial, LLC - Beachwood, NJ
Honesty, Integrity, Service

Great post.

You might mention that the 75% restriction is not waived on a multi-family even if the borrower and non occupying borrower are related.

I get that question a lot. Based on the area multi-families may be more prevalent.


Oct 29, 2010 11:02 PM #15
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