Lots of parents want to help their children get a leg up in the early stages of adult life. Some parents pay for their children to go to college, some buy cars, and still others buy homes for their children. Can a parent and child apply for an FHA mortgage together even if the parent doesn’t plan on living in the home?
FHA loan rules found in HUD 4155.1 explain what is possible and what is not possible for an FHA loan when it comes to applications with “non-occupying co-borrowers”. In such cases, Chapter Two Section B of HUD 4155.1 says, “A non-occupying borrower transaction involves two or more borrowers where one or more of the borrower(s) will not occupy the property as his/her primary residence.
When there are two or more borrowers, but one or more will not occupy the property as his/her principal residence, the maximum mortgage is limited to 75% loan-to-value (LTV).”
Borrowers who are related DO have an exception to this rule. Chapter Two says maximum financing is available for
- borrowers related by blood, marriage, or law, such as spouses, parents, children, siblings, stepchildren, aunts, uncles, nieces, and nephews,
- unrelated individuals who can document evidence of a longstanding, substantial family-type relationship not arising out of the loan transaction.”
So parents can co-borrow with their children, and if they qualify for an FHA loan can apply for the maximum amount according to FHA loan rules. Lender standards may also apply in this area, so it’s important to keep in mind that a borrower may need to shop for a lender to get the most competitive terms and interest rates.
FHA loan rulebook also adds an important caveat to these guidelines in cases where a parent wants to sell a property to a child AND act as a non-occupying co-borrower on the FHA home loan. According to HUD 4155.1, “If a parent is selling to a child, the parent cannot be the coborrower with the child, unless the (Loan To Value ratio) is 75% or less.” That means the borrowers would need to come up with 25% of the price out of pocket in those cases.
Do you have questions about FHA home loans? Ask us in the comments section. You can apply or get pre-approved for an FHA loan at FHA.com, a private company and not a government website.