FHA · HUD Handbook 4000.1FHA non-occupant co-borrower: how much a parent or relative can help qualify

Parents and other relatives often co-sign so a buyer can qualify for an FHA loan. HUD Handbook 4000.1 calls this a Non-Occupying Borrower Transaction: two or more borrowers where one or more won't occupy the property as their principal residence. The maximum loan-to-value is 75%. It can go up to 96.5% if the borrowers are Family Members – but not when a Family Member is selling to a Family Member who will be a non-occupying co-borrower, and not on a two- to four-unit property. For this purpose a Family Member, regardless of sex or marital status, is a child, parent or grandparent (including step and foster), spouse or domestic partner, adopted or foster child, brother or sister (including step), uncle or aunt, or an in-law (son-, daughter-, father-, mother-, brother- or sister-in-law). The borrowers still owe FHA's Minimum Required Investment of at least 3.5% of the property's adjusted value (National Housing Act §203(b)(9)). Every occupying and non-occupying borrower and co-borrower must take title in their own name or a living trust at settlement, be obligated on the note and sign all security instruments; in community property states, a borrower's spouse isn't required to be a borrower or co-signer, but the mortgage must be signed by everyone needed to make the lien valid under state law. A co-signer is different: liable on the note, but without an ownership interest, so they don't take title.