May 16, 2011
There are many situations where a parent and child may wish to apply for an FHA insured home loan together. One of those is where a parent co-borrows on an FHA loan for the child in college, purchasing what some in the real estate industry call a “kiddie condo”.
In such cases, the parent co-borrows on the loan but does not occupy the property. In most cases an FHA loan with a non-occupying co-borrower would be limited to 75% of the loan-to-value ratio, rather than the maximum loan amount.
But FHA rules say when it comes to family members, the rules are different. A parent and child can take out an FHA home loan and get the maximum amount of FHA financing available (as long as the borrowers otherwise qualify). FHA rules say all borrowers related by blood are permitted to get the benefit of this rule, not just parents and their children. That includes aunts, uncles, nieces and nephews, etc.
The FHA even makes a provision for “unrelated individuals who can document evidence of a longstanding, substantial family-type relationship not arising out of the loan transaction.” That means co-borrowers not related by blood would have to show evidence of that relationship and that it was not created specifically for the purpose of the FHA home loan. The FHA reserves the right to make the final decision in such cases, but if a non-related “family” member and child are approved for such a loan they would be eligible for 100% of the maximum FHA loan they qualify for.
The FHA rules also add that a parent selling property to the child cannot be named as co-borrower on an FHA loan unless the loan-to-value is 75% or less, so all the above would not apply in a scenario where the parent sells a condo to the child. It’s worth noting that for the purposes of these rules “parent” and “child” refer to the relationships only, rather than a specific age range.
A child must be of legal age and able to sign contracts in the state where the FHA loan would be issued. Minors not yet of legal age or otherwise unable to endorse binding contracts would be unable to apply for the FHA loan.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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