What are the LTV Requirements When a Loan has a Non-Occupying Co-Borrower?

This Article On Non-Occupant Co-Borrower Mortgage Guidelines On Home Loans

FHA and Conventional loans are the two most popular home mortgage programs in the nation that allow non-occupant co-borrowers to be added to the main borrower on a home purchase and/or refinance mortgage.

There are three government-backed mortgages:

  1. FHA loans
  2. VA loans
  3. USDA loans

Government-backed mortgages are for owner-occupant homes only. You cannot finance second homes and/or investment properties with government-backed loans. One of the hurdles facing many homebuyers is running into high debt to income ratio. This holds especially true for homebuyers with large student loan balances, self-employed borrowers, or borrowers with cash income. Lenders are very strict when it comes to qualified income. Cash income is non-existent in the mortgage world. Many self-employed borrowers take advantage of taking write offs. Unreimbursed expenses can save self-employed people thousands of dollars but is bad when they are qualifying for a mortgage. Lenders use adjusted gross income which is the net income after tax deductions. Part-time jobs, other jobs, second jobs, and other sources of income cannot be used unless the borrower has a two year history of making such other income and reflects on the income tax returns. The good news is lenders allow non-occupant co-borrowers to be added to the main borrower on FHA and Conventional loans. FHA is the only government loan program that allows non-occupant co-borrowers. VA and USDA do not allow non-occupant co-borrowers on VA and USDA loans. Fannie Mae and Freddie Mac allow non-occupant co-borrowers to be added on conventional loans.

In this article, we will discuss and cover non-occupant co-borrower mortgage guidelines on FHA and Conventional loans.

Non-Occupant Co-Borrower Mortgage Guidelines On FHA Loans

What are the non-tenant co-borrower mortgage guidelines for FHA loans

In this article, we will discuss the non-occupant mortgage guidelines on FHA and Conventional loans.

In this paragraph, we will go over the non-occupant co-borrower mortgage guidelines on FHA loans. HUD, the parent of FHA, sets the HUD Agency Guidelines on FHA loans. Before we delve into the non-occupant mortgage guidelines on FHA loans, lets define what a non-occupant co-borrower is. Non-occupant co-borrowers are co-signers of a home mortgage. Non-occupant co-borrowers do not live with the main borrowers. They have their own homes and/or apartments. The purpose of non-occupant co-borrowers is in the event the main borrower default and/or forecloses on their mortgage, the lender will hold the non-occupant co-borrowers liable for the defaulted debt. HUD allows as many non-occupant co-borrowers to be added to the main borrower’s home loan. Non-occupant co-borrowers do not have to live nearby the main borrowers. There is no distance requirements of the main borrower and non-occupant co-borrowers to live nearby. Non-occupant co-borrowers can live out of state. Non-occupant co-borrowers need to meet all HUD Agency Guidelines in order to qualify. This includes meeting HUD Agency Guidelines with regards to minimum credit scores, debt to income ratio, and other credit/income requirements.

Non-Occupant Co-Borrower Mortgage Guidelines On Relationship Requirement To Main Borrowers

Who is Allowed to become a Non-Occupant Co-Borrower on FHA loans?

HUD Agency Guidelines allows both family members and good friends and/or associates of the main borrower to become non-occupant co-borrowers. However, for the main borrower to qualify for a 3.5% down payment home purchase FHA loan with non-occupant co-borrowers, the non-occupant co-borrower need to be related to the main borrower by blood, marriage, and/or law. Otherwise, if non-occupant co-borrowers are not related to the main borrower by law, marriage, blood, HUD requires a 25% down payment on the home purchase.

The following people are considered as being family and the relationship by law, blood, marriage applies:

  • Children, parent, or grandparent
  • Spouse and/or domestic partner
  • Foster child and/or foster parent
  • Brothers and/or stepbrothers
  • Sisters and/or stepsisters
  • Uncles and/or aunts
  • Legally adopted child – includes child placed with the borrower by an authorized agency for legal adoption
  • Son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law

HUD definition of children are a son, daughter, stepson, or stepdaughter. The definition of parents or grandparents include a step-parent or grandparent as well as a foster parent or foster grandparent.

Cases Where HUD Requires A 25% Down Payment On FHA Loans With Non-Occupant Co-Borrowers

What are the cases where a HUD requires a 25% down payment on FHA loans with non-resident co-borrowers?

If the co-borrowers are not related to the main borrower by law, blood, and/or marriage, HUD allows non-family members to become non-occupant co-borrowers but the main borrower needs to put a 25% down payment versus a 3.5% down payment and/or have at least a 75% loan to value of the purchase price and/or appraised value, whichever is less.
Here are situations where HUD requires a 25% down payment and/or 75% LTV of the home purchase price and/or appraised value on FHA loans:
  • Having non-family members as non-occupant co-borrowers
  • Purchasing and/or refinancing a two to four unit multi-family owner-occupant primary residence home
  • Family member selling to a family member who will be a non-occupying co-borrower
Purchasing and/or refinancing a two to four unit home and family member selling to a family member who will be a non-occupant co-borrower will limit family member co-signors to 75% as well.

Eligibility Requirements 

There are no limits on the number of non-occupying co-borrowers to be added. However, all non-occupant co-borrowers need to meet the minimum HUD Agency Mortgage Guidelines. This includes with regards to the minimum credit score requirements, debt to income ratio caps, waiting period after bankruptcy and/or foreclosure. The qualifying credit score used with the middle credit score of the borrower with the lowest credit scores. This is whether the main borrower and/or co-borrowers has the lowest credit scores.

Fannie Mae And Freddie Mac Non-Occupant Co-Borrower Mortgage Guidelines On Conventional Loans

What are the Mortgage Guidelines on conventional loans

Fannie Mae and Freddie Mac Non-Occupant Co-Borrower Mortgage Guidelines allow for non-occupant co-borrowers to be added on owner-occupant primary conventional loans. Unlike FHA Loans, conventional loans does not require non-occupant co-borrowers to be related to the main borrower by law, blood, and/or marriage. You can have friends, co-workers, business associates become non-occupant co-borrowers  Conventional loans require a 3% down payment on a home purchase for first time homebuyers. First time homebuyers is defined as a home buyer who did not have any homeownership interest in the past three years. Otherwise, owner occupant homebuyers need a five percent down payment on a home purchase on conventional loans.


Gustan Cho is a senior mortgage expert and National Managing Director, providing direct-to-consumer advice at NEXA Mortgage LLC. We are a mortgage brokers licensed in multiple states. We are experts in FHA Loans, VA Loans, USDA Loans, Conventional Loans, FHA 203k Loans, Reverse Mortgages Jumbo Mortgages, Non-QM mortgages, Bank Statement Mortgage Loans for self employed borrowers, and alternative financing.

6 Comments

Unfortunately due to unforeseen circumstances and student loan debt, I am currently in a chapter 13 bankruptcy. I just passed the 2 year mark. I should be done November 2021. My fiancé did try to purchase a home on his own about 2 years ago, unfortunately because it was based solely on his income that fell through. I am wondering what are options are, and if it is even possible for me to purchase a home during this time.

Thank you!

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Loan information:

Full Name: Jennifer Forrester
Email Address: Jchristopher21212@hotmail.com
Phone: 8652998400
State: Tennessee
Estimated Purchase Price or Home Value: $140,000 – $150,000
Estimated Loan Amount: $140,000 – $150,000
Type of Loan Needed: Purchase
Estimate your credit score: Poor 580 – 639
Bankruptcy Within Past 2 Years: No
Are You Working with a Realtor? No
Comments:

Jennifer
I am connecting you with Michelle (815) 593-4122 who can help with your mortgage. You can also start by completing her online application here.

Hi There!

Mr. Cho,

I had a business-related Chapter 7 bankruptcy that was discharged on 4/1/2020. I am hoping to qualify to buy a house in another five months at the two-year mark of my bankruptcy discharge. We surrendered our previous house to the banks as part of the bankruptcy and it went to foreclosure because it was tied to a $1.4M business loan for the next 20 years.

I have a credit score of 680-700, almost no debt, and an income of about $140,000 to $150,000 a year.

1) Will I be able to get an FHA loan at the 2-year mark?

2) Are there any other types of loans I might qualify for?

Thank you,

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