July 13, 2011
FHA loans permit a buyer to apply for the mortgage with a non-occupying co-borrower, which is defined as someone financially obligated on the mortgage and required to sign all legal paperwork to that effect, but who is not living on the property purchased with the FHA loan as their principal residence.
In these cases, FHA rules state that the loan amount is limited to a 75% LTV, which means the borrowers must provide the remaining 25% of the purchase price.
Some borrowers may read that feeling defeated before they start if that remaining 25% is too much to come up with, but FHA loan applicants should keep in mind an exception on this 75% LTV requirement for non-occupying co-borrowers who are also related to the occupying borrower.
Specifically, FHA requirements state that “maximum financing” is permitted for FHA loans with a non-occupying co-borrower related to the occupying borrower “by blood, marriage or law (spouses, parent-child, siblings, stepchildren, aunts-uncles/nieces-nephews, etc.), or for unrelated individuals that can document evidence of a family-type, longstanding, and substantial relationship not arising out of the loan transaction.”
This exception does have limitations. Children can’t buy real estate from their parents with an FHA insured mortgage using this exception if the parent is the co-borrower on the mortgage. In such cases the 75% LTV rule is in full effect. The FHA refuses to allow the 75% LTV exception in cases where the borrowers are purchasing investment properties
FHA loans with non-occupying co-borrowers are not impossible to obtain, but the planning and budgeting issues that come with the 75% LTV rule may require the borrowers to take some extra time to save up a down payment and budget accordingly.
Borrowers who want to do this should consider getting an FHA-referred mortgage counselor who can give some expert advice on how to best proceed and consider talking to a potential lender for more advice on how to successfully apply for such a 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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