September 21, 2019

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FHA Loans, Debt-To-Income Ratios, and Cosigning

2015-06We received an excellent reader question recently about how being a co-signer on someone else’s financial obligation might affect a borrower’s chances for an FHA mortgage loan. Does being a co-signer have any influence on how the lender views your credit? Your debt-to-income ratio?

FHA loan rules published in HUD 4155.1 address these issues. Chapter Four Section C has a heading titled “Contingent Liability On Cosigned Obligations” and addresses this reader question directly. The rules begin by describing what is considered a contingent liability for the purposes of processing an FHA mortgage loan appication:

“A contingent liability exists when an individual is held responsible for payment of a debt if another party, jointly or severally obligated, defaults on the payment.” Simple enough. But the FHA goes further in the next paragraph, stating:

“The contingent liability policies described in this topic apply unless the borrower can provide conclusive evidence from the debt holder that there is no possibility that the debt holder will pursue debt collection against him/her should the other party default.”

With those things in mind, what does the FHA loan rulebook have to say about being a co-signer and how it might affect your FHA loan application? “Contingent liability applies, and the debt must be included in the underwriting analysis, if an individual applying for an FHA-insured mortgage is a cosigner/co-obligor on a

car loan
student loan
mortgage, or
any other obligation.

If the lender obtains documented proof that the primary obligor has been making regular payments during the previous 12 months, and does not have a history of delinquent payments on the loan during that time, the payment does not have to be included in the borrowers monthly obligations.”

That’s good to know not only when you’re in the planning stages for an FHA mortgage, but also to help your decision making process before you’ve committed to applying for one.

Do you have questions about FHA loans or refinance loans? Ask us in the comments section. Your comment may not appear on the site immediately as all comments are held for review.

Joe Wallace - Staff Writer

By Joe Wallace

August 12, 2015

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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FHANewsBlog.com was launched in 2010 by seasoned mortgage professionals wanting to educate homebuyers about the guidelines for FHA insured mortgage loans. Popular FHA topics include credit requirements, FHA loan limits, mortgage insurance premiums, closing costs and many more. The authors have written thousands of blogs specific to FHA mortgages and the site has substantially increased readership over the years and has become known for its “FHA News and Views”.

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