November 30, 2011
If you’re buying a single-family home with an FHA insured mortgage, FHA loan rules require you to certify the property will be your primary residence. But FHA loans do permit a loan with co-borrowers who do not plan to occupy the property.
Chapter Three of FHA Handbook 4155.1 states, “A non-occupying borrower transaction involves two or more borrowers where one or more of the borrower(s) will not occupy the property as his/her primary residence.” This in mind, borrowers should know that there is a different FHA maximum mortgage permitted for a non-occupying borrower transaction in many circumstances.
“When there are two or more borrowers, but one or more will not occupy the property as his/her principal residence, the maximum mortgage is limited to 75% loan-to-value (LTV).” However, the rules do provide an exception to the 75% LTV rule for family members.
Chapter Three of FHA Handbook 4155.1 lists the exceptions for family members noting that in some cases the “family” does not have to include blood relatives as long as a family type relationship exists. “…maximum financing, as described in HUD 4155.1 2.A.2, is available for borrowers related by blood, marriage, or law, such as:
spouses
parents-children
siblings
stepchildren
aunts-uncles, and
nieces-nephews
or unrelated individuals who can document evidence of a longstanding, substantial family-type relationship not arising out of the loan transaction.”
There is one important clause in these rules. In situations where a parent is selling property to a child (who is purchasing said property with an FHA insured mortgage), the parent can only co-borrow with the child if the LTV is 75% or less.
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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