July 20, 2016
The video above gives some basic information about what a co-signer is, but there are some other details you should know about using a co-signer. FHA loan rules governing cosigners and related issues are found in HUD 4000.1 in a variety of places. One of the first things you’ll learn about co-signing an FHA mortgage is that the cosigner will need to verify identity using a Social Security Number.
FHA loan rules differentiate between a co-borrower, who has shared ownership of the property purchased with the FHA mortgage, and the co-signer, who does not. In some cases, community property laws for legally married couples may affect how co-borrowing or co-signing is carried out.
FHA loan rules in HUD 4000.1 state: “To be eligible, all occupying and non-occupying Borrowers and co-Borrowers must take title to the Property in their own name or a Living Trust at settlement, be obligated on the Note or credit instrument, and sign all security instruments. In community property states, the Borrowers spouse is not required to be a Borrower or a Cosigner. However, the Mortgage must be executed by all parties necessary to make the lien valid and enforceable under State Law.”
FHA has rules for co-signers including a residency requirement. “Cosigners are liable for the debt and therefore, must sign the Note. Cosigners do not hold an ownership interest in the subject Property and therefore, do not sign the security instrument…Non-occupying co-Borrowers or Cosigners must either be United States (U.S.) citizens or have a Principal Residence in the U.S.”
When you become a co-signer, you assume what’s known as a “contingent liability”. This means that you could be financially liable under certain conditions (such as the primary borrower defaulting on the mortgage loan). That can and does affect your future credit applications. If you are a co-signer and want to purchase a home of your own at some point using an FHA mortgage, for example, your contingent liabilities will be reviewed as part of your mortgage loan application. From HUD 4000.1:
“A Contingent Liability is a liability that may result in the obligation to repay only where a specific event occurs. For example, a contingent liability exists when an individual can be held responsible for the repayment of a debt if another legally obligated party defaults on the payment. Contingent liabilities may include Cosigner liabilities and liabilities resulting from a mortgage assumption without release of liability.”
That’s why it can be very important to consider your own future plans when choosing to co-sign for another person. It’s good to know the long term implications of such contingent liabilities and whether or not they affect your financial needs or goals in the future.
Do you work in residential real estate? You should know about the free tool offered by FHA.com. It is designed especially for real estate websites; a widget that displays FHA loan limits for the counties serviced by those sites. It is simple to spend a few seconds customizing the state, counties, and widget size for the tool; you can copy the code and paste it into your website with ease. Get yours today:
http://www.fha.com/fha_loan_limits_widget
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.
Browse by Date: