Non-Occupying FHA Guidelines Co-Borrower – How To Qualify For FHA Loan

Through the Federal Housing Administration, the Department of Housing and Urban Development provides mortgage loans for borrowers of modest means, increasing affordable homeownership for millions every year. Since its inception in 1934, the FHA has flexible underwriting guidelines over conventional financing, allowing borrowers to buy homes with lower payments, credit problems and low to moderate incomes. In order to further encourage the property, FHA approves the use of non-occupant co-borrowers to help with credit rating. Check who should get an FHA loan

The basics

FHA insurance protects lenders by paying back in the event of borrower default. The added protection decreases the lender’s risk, more and more their willingness to lend to FHA borrowers.

FHA programs are generally geared towards homeowners. As such, the FHA guidelines require at least one movement of the borrower in the home within 60 days of signing the mortgage guarantee instrument, and use the house as their principal residence for at least the majority of the year.

The admissibility of a non-occupying co-borrower is a unique feature of FHA loans.

Requirements Co-borrower

A co-borrower shares the same rights and responsibilities of the property with the principal borrower, including taking title to the property at the time of settlement, signing all security instruments and being required on the mortgage note.


A non-occupying co-borrower can only be added to the loan application in order to qualify for a cash-out refinancing — a transaction in which the homeowner draws on equity in their home, increasing their loan balance. Because this type of loan involves more risk for the lender, all borrowers, co-borrowers, and co-signers on the loan must occupy the home as their primary residence. A co-signer helps with credit rating but holds no property rights on the property. Most FHA transactions do not usually require a co-signer to occupy the house.

A co-signer helps with credit rating but holds no property rights on the property. Most FHA transactions do not usually require a co-signer to occupy the house.

The use of a non-occupying co-borrower also applies to properties with three or four units.


A non-occupying co-borrower or co-signer of good credit does not allow a borrower whose credit scores do not meet the FHA’s reference guidelines. The non-occupant allows the borrower in terms of eligible income.

In May 2008, FHA began allowing the addition of non-occupying co-borrowers to refinance operations (with the exception of withdrawals of money and three to four-unit properties), in an effort to further assist homeowners to get better loans from the FHA.

What is second chance home financing?


Conventional mortgage financing is also available two years after a foreclosure.

Given the high cost of buying a home, many homebuyers use financing to buy properties. Some mortgage borrowers eventually default on their loans and then lose their homes to foreclosure, however, losing a home usually does not prevent one person from getting another mortgage in the future. Some former homeowners, in fact, can qualify relatively quickly after losing a home by some “second chance” home financing programs.

Mortgages After Foreclosure

Mortgage borrowers who have defaulted on their loans usually lose their homes through foreclosure, short sale, or an act in lieu of foreclosure. Any type of lender repossessed can also weigh heavily on the credit rating of the borrower. Although the amount of time a former landlord has to wait to receive a new mortgage loan after repossession varies from three to eight years is common. So-called “second chance” home financing can reduce the post-resumption waiting period to 12 months in certain circumstances.

Federal Housing Administration Second Chance Home Financing

Supported federal mortgages are often better chances of getting affordable second-chance home financing 12 months after repossession of a borrower. The Federal Housing Administration, for example, offers eligible borrowers a “return to work” mortgage. The FHA requires return to work mortgage applicants to document the circumstances that caused the default. Such circumstances must be beyond the control of the borrower, such as loss of employment or layoff, and not voluntary. Applicants must provide documented proof of reduced income.

Subprime Mortgage Financing

Another type of second-chance home financing is available to former homeowners willing to pay higher interest rates for post-repossession mortgages. Often known as subprime mortgages, these loans cost more and are less numerous and more between the FHA and conventional loans. At the time of publication, some large lenders relaxed subprime credit scoring requirements to as low as 600. Subprime lenders may require 25 percent down shortly after a foreclosure.

Shopping for Home Financing

Buy the lowest interest rate on a second chance mortgage. While subprime mortgages offer easier qualification and the availability of time after home repossession, they are expensive. Interest rates on subprime mortgages can be several points above the prime rate and can add hundreds to a monthly mortgage payment.