August 13, 2012
Some first-time home buyers looking for a home to buy with an FHA mortgage don’t come to the bargaining table alone. The choice to include a co-borrower or co-signer is an important one, and FHA loan rules have guidelines when a co-borrower or co-signer is present.
FHA loan rules make a distinction between a co-borrower and a co-signer. What’s the difference? According to FHA loan rules in HUD 4155.1, Chapter Four:
“Both occupying and non-occupying borrowers and coborrowers take title to the property at settlement, are obligated on the mortgage note, and must sign all security instruments.”
But the rules also say cosigners “do not hold ownership interest in a property”, and while they are obligated on the mortgage note, “have no liability for repaying the obligation, and must complete and sign all loan documents except the security instruments.”
The FHA won’t allow certain parties to the FHA mortgage transaction to act as co-signes or co-borrowers. “A party who has a financial interest in the mortgage loan transaction, such as the seller, builder, or real estate agent, may not be a coborrower or a cosigner.” There’s one exception–when the person with the financial interest in the transaction is a relative.
FHA loan rules state, “An individual signing the loan application must not be otherwise ineligible for participation in the mortgage loan transaction process…”
Co-signers and co-borrowers must submit qualifying information the same as the primary FHA loan applicant. According to FHA loan rules, “When determining the creditworthiness of borrowers, coborrowers, or cosigners, the underwriter considers their
income
assets
liabilities, and
credit histories.”
As you can see, co-signing and/or co-borrowing isn’t as simple as agreeing to sign on the dotted line, but for some borrowers, a co-signer/co-borrower arrangement can be a big advantage when applying for an FHA home loan.
Do you have questions about the FHA loan process? Ask us in the comments section.
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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