May 23, 2011
When applying for an FHA home loan, a borrower does not have to share the financial responsibility for the mortgage all by themselves. FHA rules allow a co-borrower or co-signer to apply alongside the borrower.
In some cases this can improve the FHA loan applicant’s chances of getting a loan approved, and it’s also a way for a borrower with established credit to help a co-borrower become a home owner under the proper circumstances.
It’s easy to assume a co-signer and co-borrower are the same thing, but in the eyes of the FHA and the lender, these are two separate terms. Co-signers don’t have the same benefits as co-borrowers, though they may share the same responsibilities in many cases.
According to the FHA, “Co- borrowers take title to the property and are obligated on the mortgage note and must also sign the security instrument. The co-borrower’s income, assets, liabilities, and credit history are considered in determining creditworthiness.”
Compare that to the FHA requirements for a co-signer, who does not have interest in the property purchased with an FHA insured mortgage, but do carry responsibility.
The FHA states, “Co-signers do not hold ownership interest in a property, but are liable for repaying the obligation and must sign all documents with the exception of the security instruments. 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.”
A co-borrower or co-signer cannot have financial interest in the property. That means that a buyer cannot co-borrow with the seller of the property. The same applies to the builder, real estate agent or other “interested parties” that could profit from the sale of the home.
The FHA does provide an exception to this rule. “Exceptions may be granted if the seller and co-borrower/co-signer is related to the owner by blood, marriage or law.”
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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