FHA Non-Occupant Co-Borrowers: When there are two or more borrowers, but one or more will not occupy the property as a principal residence, the maximum mortgage is limited to 75% LTV. In order to exceed the 75% LTV and obtain Maximum Financing, all of the following conditions must be met:

• Borrowers are related by blood (parent-child, siblings, aunts-uncles/nieces-nephews, etc), OR, if unrelated, must provide evidence and document a family-type, longstanding and substantial relationship not arising out of the loan transaction.

• Subject property must be a One-Unit dwelling.
• Non-occupant co-borrowers must have a principal residence in the United States.
• All borrowers must take title to the property, sign the security instrument and mortgage note. (FHA requires that all borrowers that are in title to the property must sign the security instrument and the mortgage note.)

• The non-occupant co-borrower cannot be an interested party in the transaction (i.e. seller, builder, real estate agent) except in the following situations:

• The property is currently the family member’s principal residence; or,
• The borrower has been a tenant in the subject property for at least six months pre-dating the sales contract (evidence must beprovided to verify occupancy and tenancy).

• HUD will permit the non-occupant co-borrower to assist the borrower in financing the property (i.e. funds for down payment), provided it is evident that the non-occupant co-borrower is not using the borrower to develop a portfolio of rental properties. If the degree of financial contribution by the non-occupant borrower and the number of properties similarly owned indicate that an investor loan has become the practical reality and, in effect, family members are acting as “straw-buyers,” the loan must be denied.

• FHA does not impose additional underwriting criteria on such transactions, such as specific qualifying ratios that the occupying borrower must meet individually unless Non-Traditional Credit histories are involved.  If non-traditional credit history must be used to qualify the occupant borrower, the occupant borrower must qualify independently with ratios of 31/43% (ratios are strict and compensating factors cannot be used to justify higher) and the occupant borrower must have a minimum of 2 months PITI in reserve from their own personal assets (not gifts).