FHA loan benefits extend beyond low down payment
The program has helped millions of first-time home buyers achieve homeownership with a non-occupant co-borrower.
This program offers loan approvals to those with very little money down and .
But that’s not where the benefits stop. FHA also allows family members, or even close friends, help each other qualify to buy a home.
For example, a geographically-distant parent can apply as a non-occupant co-borrower to help a child buy a home, and vice versa.
This FHA loan feature is helpful when the buyer does not have to qualify for a home on his or her own.
FHA guidelines are generous in this area, and have helped countless parents, children, and other family members assist each other when buying a home.
Family mortgages for college students, aging parents
There are many reasons for purchasing a home for a relative, or for helping a relative buy a home.
The cost of room and board at some colleges is higher than that of mortgage payments, especially considering today’s low mortgage rates. Simple cost comparisons prompt some parents to buy a house or condo for their student’s next four years.
In other cases, it’s the children helping retired parents downsize to a new house or condo. Home purchases for relatives make up about one percent of residential real estate transactions according to Realtor.org.
This trend is poised to gain in popularity as rents rise and populations age across the country.
Get assistance from almost any family member
A property purchased by a non-occupant borrower with an FHA loan is often known as a “kiddie condo.” However, this nickname does not fully describe the program.
The parent does not have to buy for the child. Nor does the property have to be a condo.
With this program, there are borrowers who live in the home, and co-borrowers who do not, no matter which party will occupy the residence.
Co-borrowers who don’t live in the property can be related by blood, marriage, or law. Examples of permitted co-borrowers are as follows.
- Aunts and uncles
- Nieces and nephews
Even unrelated people who can prove they have a “family-type, longstanding, and substantial” relationship can finance a home together with 3.5 percent down.
For instance, a life-long best friend for whom a documented relationship could be established could use his or her income to help a friend qualify.
Eligible properties: condos, town homes and more
You can finance many different kinds of property with the FHA non-occupant co-borrower loan: single-family houses, condominiums, or manufactured homes.
Not every type of home is eligible for the minimum 3.5 percent FHA downpayment, however.
Multi-unit properties – a duplex, triplex and four-plex — can be financed with a 25 percent down payment. This added requirement prevents investors from using the program to buy rental units.
There is no restriction on charging rent to roommates, however. This guideline could enable parents to help a college student buy a home, for instance. The arrangement could be an economical choice short-term and a good long-term investment.
Choose to be a co-borrower or co-signer
According to FHA guidelines, non-occupying buyers can be co-borrowers or co-signers.
The difference between being a co-borrower instead of a co-signer is that co-borrowers are obligated by the mortgage and they co-own the property. They must be added to the property title at closing.
Co-signers have no ownership interest in the home, but are liable for the mortgage if the occupying borrower fails to make the payments.
A co-borrower has an advantage over the co-signer in that he or she is a legal owner of the home. If the arrangement doesn’t work out, the co-borrower is in a better position to sell or rent the property.
A co-signer takes on responsibility, but stands to gain little if anything. Still, co-signing could be the better option for individuals who do not want their name on another home’s title.
Helping buyers with “thin credit files”
All occupying and non-occupying borrowers must agree to the terms of the loan and sign the note. Every borrower has to pass a credit check, even if he or she will not be making the payments.
In many cases, the occupying home buyer will have an insufficient credit profile.
Co-borrowers with good credit can help boost the score of a relative with “thin credit” – when the borrower has a short credit history or only a few active accounts.
The credit-experienced borrower can add the other borrower to their accounts as an “authorized user.”
You don’t need to give the authorized user access to your credit cards. Your good credit history is simply lent to the authorized user’s credit report. This strategy is only allowable for relatives.
Another option for a relative with a thin file is non-traditional credit—a report created from things like cell phone, Internet, utility or auto insurance payments.
FHA loans allow non-traditional credit reports, a feature that is widely used by non-occupant co-borrowers and standard borrowers alike.
What are today’s mortgage rates?
FHA non-occupant co-borrower loans allow close friends and family members to purchase homes for each other at the same low FHA mortgage rates as are available for other FHA loans.
Check today’s rates and get request a quote to get started on your non-occupant co-borrower FHA loan, with very little information needed upfront.