Buying a Home With an FHA Loan Using a Cosigner

November 8, 2022

In an era of rising mortgage rates and home prices, it’s easy to worry about being able to qualify for a home loan.

The house hunter who is worried they may not be able to qualify for a home loan on their own may feel the need to add a co-signer or co-borrower. Others may be interested in buying a home with a significant other or spouse and will have a co-borrower to share the loan with. 

In either case, FHA home loans and refinance loans may allow one borrower or multiple borrowers. It’s important to know going into this process that all parties to be obligated on the mortgage loan must be able to financially qualify. You won’t be able to make up for the credit shortcomings of one borrower by adding another.

Having a cosigner or co-borrower can be an advantage as long as you understand the rules.

FHA Borrowers and Co-Borrowers 

FHA loan rules in HUD 4000.1 say to be eligible for an FHA home loan or an FHA refinance loan, “...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.”

At least one borrower obligated on the loan must occupy the home as the primary residence after closing day as a condition of loan approval. 

But if you have a non-occupying co-borrower you may have a different down payment requirement. The down payment requirement may be higher for non-occupying co-borrowers who are not family members. 

Co-borrowers should be prepared to accept their share of the financial responsibility for the mortgage. And that’s not the obvious issue it might seem to be at first glance. 

For example, if you buy a house in a community property state and you are legally married, is the spouse required to cosign, co-borrow, or have their credit considered as part of the loan application?

Community Property Laws

Community property laws have a say in how the state recognizes the ownership of the debts incurred during a legal marriage. In such states, the procedures for entering into certain types of credit while in a legal 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 a home loan contract if they are not a party to the transaction, but state law may have a say in how such transactions are handled there. 

You will need to know your rights and obligations under your state's law. FHA loan rules do not override your state or local laws.

What to Do if You Want a Cosigner on Your FHA Home Loan

Your loan needs are as unique as the transaction you're entering. Discuss your circumstances with a loan officer ahead of any planned house hunting and learn what state law says along with the standards may be at your chosen financial institution.

As mentioned above, you should 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. Remember, cosigning on a loan is not merely providing a character reference for the loan, it is accepting a legal liability for that loan.

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