How Does FHA Define Family Member: Non-Occupant Co-Borrowers
If you were wondering how does FHA Define Family Member you will find out in the following article. FHA or the Federal Housing Administration which is overseen by HUD or the United States Department of Housing and Urban Development has their own guidelines on how does FHA Define Family Member. The definition of a family member will be gone over when we get to the section about non-occupant co-borrowers on a home purchase. FHA will allow for non-occupant co-borrowers to be included on a home loan purchase when the original borrower for the FHA Loan cannot qualify on their own due to factors such as minimal or no income. Trying to add on a co-borrower may be pretty simple since FHA has no rules or restrictions to how many non-occupant co-borrowers can be added to the main borrower’s FHA Loan application. The one main requirement is that any non-occupant co-borrowers are a family member.
How Does FHA Define Family Member: Non-Occupant Co-Borrowers
Before we get into how does FHA Define Family Member, it is first smart to go over what exactly a non-occupant co-borrower is going to be expected to do or what type of situation they are walking into. Non-occupant co-borrowers are needed when the main borrower will have troubles getting approved due to no income or minimal income which results in them having a debt to income ratio that exceeds the maximum for FHA guidelines. These guidelines are 56.9% if the borrower has a 620 FICO credit score or greater, or it is 43% if the borrower has a FICO credit score under 620. If you are a borrower and you can’t meet these minimum requirements you will need to know how does FHA Define Family Member since you may need one or several to get your loan approved.
Credit Scores Determined With Co-Borrowers
If you are wondering how credit scores are determined and what will be used when you need co-borrowers, it is actually a pretty simple calculation on how this will happen.
Per FHA Guidelines, no matter how many co-borrowers you have, the only credit score you are going to use for qualification purposes is the lowest of all the middle scores. Let me illustrate this scenario for you below:
– Borrower A: 540 TransUnion, 620 Experian, 660 Equifax
– Borrower B: 555 TransUnion, 650 Experian, 630 Equifax
– Borrower C: 565 TransUnion, 640 Experian, 645 Equifax
In this scenario the 3 middle credit scores are 620 Experian, 630 Equifax, and 640 Experian. The lowest of the middle credit scores would be Borrower A’s 620 Experian score. As long as you are going to be using this co-borrower on the FHA Loan application, 620 is the FICO credit score to be used.
How Does FHA Define Family Member: Who Is It?
Finally, we can get to How Does FHA Define Family Member and for this we are going to have to reference the FHA Guidelines in the HUD 4000.1 Handbook. In this publication, you will see how FHA Define Family Member and you can see it in the list below:
- Child: Defined as a son, stepson, daughter, or stepdaughter
- Parent of Grandparent: Includes step-parent, grandparent, foster parent, or foster grandparent
- Spouse or Domestic Partner
- Legally adopted son or daughter
- Foster Child of Borrower
- Brother or Stepbrother
- Sister or Stepsister
- Uncle of the Borrower
- Aunt of the Borrower
- Son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, sister-in-law
2023 FHA Non Occupant Co-Borrower and Family Member
I wanted to take time to write this article to clarify the rules regarding 2023 FHA Non Occupant Co-Borrower as well as some other items along the way. The common myth within the mortgage industry is that if you cannot qualify for a purchase home loan on your own that you won’t be able to buy a home. Well this couldn’t be farther from the truth as loan programs such as FHA have guidelines to where borrowers can have co-borrowers of the non occupant variety.
By definition this means that the co-borrower can be used to qualify for the loan BUT this co-borrower cannot be someone who lives in the home as well for their primary residence. These people must live in their own primary residence in order to be used. When the co-borrowers are used for qualification, they go through the process as if they themselves are getting approved for the home. This co-borrower will need to have qualified income as well as all the other necessary minimum mortgage lending guidelines satisfied in order to be considered for the loan. There isn’t a limit to the amount of co-borrowers a potential borrower can have, but there are restrictions to who the co-borrowers can be per the 2023 FHA Non Occupant Co-Borrower
2023 FHA Non Occupant Co-Borrower: Limitations For Family Members
The 2023 FHA Non Occupant Co-Borrower has limitations as set forth by the FHA and what is updated in 2022 is the LTV limitations based on the non-occupying borrower stats. First of all, the non-occupying borrower transaction refers to a transaction involving two or more borrowers in which one or more of the borrowers will not occupy the property as their principal residence. This echoes what was explained earlier in this article, now there are also restrictions on maximum LTV for non-occupying borrower transactions: For non-occupying borrower transactions, the maximum LTV is 75%. The LTV can be increased to a maximum of 96.5% if the borrowers are family members, provided the transaction does not involve: a family member selling to a family member who will be a non-occupying co-borrower or a transaction of a 2-4 unit property. Now you’re probably wondering what constitutes a family member? Here is what the FHA considers a family member, so always make sure your co-borrower meets to following criteria or they will not be allowed on the application/loan.
- A Family Member is defined as follows, regardless of actual or perceived sexual orientation, gender identity, or legal marital status
- Child, Parent, or Grandparent
- A child is defined as a son, stepson, daughter, or stepdaughter
- A parent or grandparent includes a step-parents/grandparent or foster parent/grandparent
- Spouse or Domestic Partner
- Legally adopted son or daughter, including a child who is placed with the Borrower by an authorized agency for legal adoption
- Foster child
If you have read my previous articles on co-borrowers, you will know that there are a lot more guidelines that go into qualifying for the mortgage which will include which credit score from which borrower is used, the debt to income ratios needed, etc. This article mainly wanted to focus on updating and clarifying the 2022 FHA Non Occupant Co-Borrower definition and requirements. As there are borrowers out there who may have trouble obtaining a loan, the FHA allows for this to happen through the use of a non-occupant co-borrower so long as they adhere to the 2023 FHA Non Occupant Co-Borrower guidelines.
According to the Federal Housing Administration (FHA), a “family member” is defined as:
- A spouse
- A child, including a biological, adopted, or foster child
- A parent or grandparent A stepparent, stepchild, stepbrother, or stepsister
- An aunt, uncle, niece, or nephew
- A son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law
- A grandchild or great-grandchild
In the context of an FHA loan, a family member may be able to help a borrower qualify for the loan by co-signing or by providing a gift for the down payment or closing costs. This can help the borrower overcome any shortcomings in their credit history or income. However, it’s always best to check with your lender for their specific guidelines regarding family member involvement in FHA loans.
If there is a need for a non-occupant co-borrower for your FHA Loan, then you need to reach out to me ASAP as this can be a tricky subject to get through properly. Don’t let other lenders give you the run around as I can lay these rules out to you in a simple fashion and get your loan approved so you can get in that dream home of yours. Please feel free to call me any time day or night at 888-900-1020, email me at contact@loanconsultants.org.