Conventional mortgages have replace FHA mortgages as the preferred mortgage program these days. However, FHA will still remains the main go-to mortgage program in some situations. One of those situations is Mortgages With A Non-Occupying Co-Borrower.
The need to have a Co-Borrower on a mortgage arises when a Borrower does not have sufficient income to qualify for a mortgage on their own. However, in many instances the Co-Borrower will not be occupying the property with the Borrower. This is especially common 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. So 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 I know of for having a Non-Occupying Co-Borrower on a Conventional Mortgage is for the purpose of being able to use the Non-Occupying Co-Borrower's assets.
As a result the only true option for a Borrower who 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% down payment.
- If the Non-Occupying Owner Borrower is related to the Occupying Borrower, they only need to have a 3.5% down payment.
- 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 Borrowers who cannot qualify to purchase a property on their own income.
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George Souto NMLS# 65149 is a Loan Originator 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, #Moodus, #Chester, #Deep River, and #Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com
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