February 3, 2017
FHA loan rules state that in cases where there are non-occupying co-borrowers, different down payment requirements may apply. According to FHA loan rules, “A Non-Occupying Borrower Transaction refers to a transaction involving two or more Borrowers in which one or more of the Borrower(s) will not occupy the Property as their Principal Residence.”
A reader got in touch recently to ask a question about the FHA loan down payment requirement in situations that feature non-occupying co-borrowers.
“I see below under 4155.1 (page 78 of 413) that unrelated individuals that can document evidence of a longstanding, substantial family type relationship would qualify for maximum financing. So since a cousin is classified as unrelated yet they’ve know each other since birth and have been living as family since then would then qualify under this?”
“I read this to mean that anyone you’ve known since you were born and have shared a relationship with would qualify, correct? Given the long list of other, non-blood related options referenced below, it doesn’t make sense that a cousin would be singled out. I have a client who is about to lose his home due to this. 3.5% vs 25% down payment is a significant difference. I need to be clear if this would be acceptable under substantial family type relationship.”
FHA loan rules were changed in recent times. The old reference mentioned in the reader question, HUD 4155.1, is no longer valid and has been replaced in its entirety by HUD 4000.1, which says of non-occupying co-borrower transactions:
“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; or
-a transaction on a two- to four-unit Property.”
The FHA definition of “family member” can include people related by blood, marriage, or law according to the FHA official site. No specific family member types have been singled out for inclusion or exclusion according to a reading of passages in HUD 4000.1.
Lender standards and state law may also apply.
Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for FHANewsblog.com where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.
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