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FHA home loans and refinance loans are designed for either a single borrower or multiple borrowers; procedures for approving loans for multiple borrowers are more or less the same as for a single applicant. The lender must determine that all parties on the loan are creditworthy.

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FHA Loan Tips for Signers and Co-Signers

FHA Loan Tips for Signers and Co-Signers
April 9, 2018 - FHA home loans and refinance loans are designed for either a single borrower or multiple borrowers; procedures for approving loans for multiple borrowers are more or less the same as for a single applicant. The lender must determine that all parties on the loan are creditworthy.

FHA Loan Rules for Borrowers and Co-Borrowers

FHA loan rules in HUD 4000.1 instruct the lender on how to proceed on loans featuring co-borrowers. According to FHA loan rules, “To be eligible, all occupying and non-occupying Borrowers and co-Borrowers must take title to the Property in their own name or a Living Trust at settlement, be obligated on the Note or credit instrument, and sign all security instruments.”

But it’s often not as simple as just collecting the signatures. State community property laws, which affect the legal ownership of the debts incurred during a legal marriage. In such states, the procedures for entering into a major line of credit in the marriage may be different. From HUD 4000.1:

“In community property states, the Borrower’s spouse is not required to be a Borrower or a Cosigner. However, the Mortgage must be executed by all parties necessary to make the lien valid and enforceable under State Law”. The spouse in a community property state is not required by the FHA to borrow or sign, but state law may have more to add above and beyond FHA loan regulations.

That means your loan officer would need to follow state law for making the loan conform to any applicable community property rules or other requirements in that state.

Tips for FHA Loan Signers and Co-Signers

Discuss your loan needs with a loan officer long before you begin house hunting. Find out what the standards are with your chosen financial institution and how the laws of your state may affect what is required of home loans with co-signers.

Expect the credit standards for all borrowers, co-borrowers, etc. to be the same. The shortcomings of one applicant won’t be compensated for by another applicant. All borrowers must financially qualify. If compensating factors are required due to credit shortcomings of one or more applicants, your loan officer will explain what may be needed in the form of a higher down payment, higher interest rate, etc.

If you and/or your co-borrower(s) are experienced landlords, you may wish to consider the purchase of a multi-unit property with your FHA home loan. FHA mortgages can be used to buy a home with as many as four living units. FHA loan rules require owner occupancy, but renting out the unused living units in the property the borrower is not occupying is permitted. Talk to your loan officer about this option to see what may be possible.

If you or one of your co-signers or co-borrowers is concerned about the ability to get your FHA home loan approved, call the FHA directly at 1-800 CALL FHA to inquire about a referral to a local, HUD-approved housing counselor who can help with pre-purchase financial planning, credit questions, and more.

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