July 31, 2014
A reader asks, “How can a person sign a mortgage note but not have liability to repay the obligation?”
FHA loan rules mention cosigners as a non-occupying parties who must sign the mortgage note but are not obligated when it comes to financial liability. According to HUD 4155.1, the lender must perform due diligence with the cosigner the same as with the borrower:
“When determining the creditworthiness of borrowers, coborrowers, or cosigners, the underwriter considers their
• income
• assets
• liabilities, and
• credit histories.”
How does the FHA define the cosigner? Let’s start by looking at the FHA definition of the borrower and co-borrower:
“Both occupying and non-occupying borrowers and coborrowers
• take title to the property at settlement
• are obligated on the mortgage note, and • must sign all security instruments.”
But cosigners are viewed differently according to HUD 4155.1 Chapter Four Section A:
“Cosigners
• do not hold ownership interest in a property
• are obligated on the mortgage note and have no liability for repaying the obligation, and
• must complete and sign all loan documents except the security instruments.”
There is no further elaboration in HUD 4155.1 on the subject of cosigners. Borrowers with questions above and beyond the information shown here should discuss their needs with the loan officer. Rules for cosigners may vary from one financial institution to another.
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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