July 12, 2011
When a borrower applies for an FHA insured mortgage, he or she has the option of bringing a co-signer or co-borrower to the deal.
It may be easy to assume the two terms are interchangeable, but they aren’t. Co-signers and co-borrowers have different rights and responsibilities under FHA regulations and it’s important to know which is which–especially if you’re the co-signer or co-borrower.
The major difference between the two is that a co-borrower “takes title to the property”, meaning that there is shared ownership between co-borrowers. Co-signers sign the legal paperwork and are obligated to pay on the mortgage. Regardless of what financial arrangements have been made privately between the co-borrowers, on paper co-borrowers share responsibility for the mortgage payment. Co-borrowers must qualify for the VA loan together.
Compare those rights and responsibilities with those of co-signers, who do not have any ownership in the property, but according to FHA rules, “are liable for repaying the obligation and must sign all documents with the exception of the security instruments.”
Co-signers must also qualify alongside the primary borrower, and according to FHA rules, “…the co-signers income, assets, liabilities, and credit history are considered in determining creditworthiness for the mortgage and the co-signer must complete and sign the loan application.”
FHA loan regulations state that co-borrowers or co-signers cannot have any financial interest in closing the sale. A seller, custom builder or real estate agent cannot co-sign or co-borrow with the FHA loan applicant. There’s an exception of both parties are related, but otherwise, as a rule co-borrowers can’t have a stake in the financial outcome of the deal.
Under the terms of FHA insured home loans, any non-occupying co-borrower or co-signer must have a ” principal residence in the United States” but this rule does not apply to military members serving overseas or U.S. citizens who live abroad.
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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