February 3, 2015
The FHA single family home loan program has an occupancy requirement which states that the borrower must intend to live in the home to be purchased with the FHA loan as his or her main residence. But there are also provisions for FHA loans that feature more than one borrower–a “non-occupying co-borrower” who signs the mortgage loan paperwork but does not move in along with the primary borrower and occupant of the home.
FHA loan rules say that there is a limit on loans like these in certain cases–in general the borrower will be required to make a 25% down payment on the property as the FHA loan maximum mortgage amount is limited to 75% of the loan-to-value amount.
According to HUD 4155.1, FHA loans say specifically:
“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).” But the FHA loan rulebook also makes exceptions for borrowers who may be related as described in HUD 4155.1 Chapter Two Section B:
“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.”
The rules for these types of transactions also include the following caveat–“If a parent is selling to a child, the parent cannot be the coborrower with the child, unless the LTV is 75% or less.”.
So as you can see, FHA loans featuring non-occupying co-borrowers may permit the maximum FHA loan financing amount (with a minimum borrower investment/down payment of 3.5%) under the right circumstances.
Do you have questions about FHA home loans? Ask us in the comments section.
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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