December 3, 2021

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FHA Loans With A Non-Occupying Co-Borrower

How does having a non-occupying co-borrower affect your FHA mortgage? What happens if one of the borrowers decides they want a change in their status as occupying or non-occupying? A reader asked us a question along these lines recently in the comments section:

“I just purchased my home in November 2016 with my husband’s uncle as a co-borrower (not living in the property). Now he is getting a divorce and his soon-to-be ex-wife wants the househe basically just helped me qualify of put the down payment to purchase and pay the mortgage on my ownhe even signed hes rights to the title the day we signed for the property is I was told. I could put in that paper after about 6 months of having the property but now I have this problem, what can I do?”

FHA loan rules in HUD 4000.1 defines a non-occupying co-borrower loan transaction as follows:

“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.”

HUD 4000.1 instructs the lender that such transactions have different down payment/LTV rules. On new purchase loans, “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.”

We mention these rules to put the reader question in the right context-the borrower who agrees not to occupy is still eligible to apply for an FHA loan of their own, but co-borrowers are liable for the loan and have an ownership interest in the property. Compare that to cosigners, who are liable for the loan but do not have an ownership interest in the property.

So the first thing that would need to be established in a situation like this is whether the reader is dealing with a cosigner or co-borrower. That would determine a great deal of what is to follow. And what are those followup actions?

That depends greatly on the laws of the state the loan was closed in, the language of the legally binding agreements signed at closing time, and other factors, but a borrower who has concerns similar to those in the reader’s question should consult a lawyer or legal expert who has experience in these issues.

We can’t dispense legal advice here. We are not lawyers and the law is generally outside the scope of this blog. But any time a borrower’s ownership rights and responsibilities are in question, a lawyer’s advice could be the most critical information needed to resolve such problems in a timely manner.

Bruce Reichstein - FHA News Author

By Bruce Reichstein

March 29, 2017

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 where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.

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About 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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