January 4, 2017
A reader asked us a question this week in the comments section about FHA loan co-signer and/or co-borrower rules. “If there is more than one person on the loan application, does it matter what percentage each person owns?”
There are a number of variables that need to be addressed to properly answer this question. For example, does the reader refer to a co-signer, or a co-borrower? Are the applicants legally married? If so, do they reside in a community property state?
FHA loan co-signer rules in HUD 4000.1 don’t specify a percentage of ownership for co-signers. The rules simply state the co-signer is “liable for the debt”.
FHA loan rules for eligibility of co-borrowers (occupying and non-occupying) don’t mention a percentage of ownership, either:
“To be eligible, all occupying and non-occupying Borrowers and co-Borrowers must take title to the Property in their own name or a Living Trust at settlement, be obligated on the Note or credit instrument, and sign all security instruments.
In community property states, the Borrowers spouse is not required to be a Borrower or a Cosigner. However, the Mortgage must be executed by all parties necessary to make the lien valid and enforceable under State Law.”
There are two areas where such issues might come into play, however. The laws of the state where the home is purchased may have something to say on such transactions, and FHA loan rules never override state law.
Lender standards may also apply. In both cases, borrowers will need to check with the local authority to see what may apply. In cases where there is a dispute, legal counsel may be required to sort things out. In cases where it’s unclear whether two borrowers may have an issue with a higher down payment required or other factor (due to either non-occupying co-borrower rules or related issues), consult with your loan officer to see what may be applicable.
For example, FHA loan cosigner and co-borrower rules say that having non-occupying co-borrowers on the mortgage may require a higher down payment except under certain conditions including (but not limited to) the following:
“For Non-Occupying Borrower Transactions, the maximum LTV is 75 percent. The LTV can be increased to a maximum of 96.5 percent if the Borrowers are Family Members, provided the transaction does not involve…a Family Member selling to a Family Member who will be a non- occupying co-Borrower”.
Speak to your lender if you aren’t sure how this may apply to your transaction.
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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