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FHA Cosigner Question

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Cromew
New Member

FHA Cosigner Question

I have good income and almost no debt (less than 2% DTI), but I am recently out of college and my short credit history is hurting my ability to qualify for a loan. My parents want to help, but their DTI is already at about 40%. I am not sure how cosigning will work in this case. If they make a combined $100k and I make $100k, our combined DTI would surely be below 35%, but would the loan officer split our incomes to determine DTI?
Message 1 of 10
9 REPLIES 9
JM-AM
Valued Contributor

Re: FHA Cosigner Question


@Cromew wrote:
I have good income and almost no debt (less than 2% DTI), but I am recently out of college and my short credit history is hurting my ability to qualify for a loan. My parents want to help, but their DTI is already at about 40%. I am not sure how cosigning will work in this case. If they make a combined $100k and I make $100k, our combined DTI would surely be below 35%, but would the loan officer split our incomes to determine DTI?

Any one on the loan would be a co-borrower (not co-signor), and yes total combined income to determine DTI.

Short credit history? Do you have a score? Is your credit at least 12 months old? Do you have a few accounts on credit history? Have you been paying rent while going to college? Cell Phone bills? Electricity? Cable bill? Things of that nature.

Good Luck
May all your dreams and wishes become a reality!
Message 2 of 10
Cromew
New Member

Re: FHA Cosigner Question

I am actually looking to go the FHA route, and in this case, my parents would be cosigners and not coborrowers (they would have no ownership of the property, but would be financially liable for the account if it were to default).

I am working with a loan officer and we have already run my information. My salary and credit score are both good, but I don't have any lines (traditional or otherwise) of over one year that would help me qualify, save for a 5-year car insurance history. It has been determined that I need to have a cosigner.

This brings me to my original question. Will my parents' high DTI work against us? I am asking whether my income will be combined with theirs to form one collective DTI to be judged.

For example, a house payment would put me personally at about 24% DTI, and it would put our collective DTI at about 35%, but it would put my parents' at about 49% (should I ever default). Will the underwriter focus on the 35% combined DTI or see the two separate 24% DTI and 49% DTI and decide that the loan cannot be approved?
Message 3 of 10
JM-AM
Valued Contributor

Re: FHA Cosigner Question

I guess I dont know what Im talking about.....

 

 

FHA Guidelines Section 606.02 Non-Occupying Owner Borrowers, states: (Says Borrower not co-signor)

“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 a 75% LTV.  However, maximum financing (as described in sections 605 to 605.03) is available for borrowers related by blood, marriage or law (spouses, parent-child, siblings, stepchildren, aunts-uncles/nieces-nephews, etc.), or for unrelated individuals that can document evidence of the family-type longstanding and substantial relationship not arising out of the loan transaction.”

A Non-Occupying Borrower who is not related to the Occupying Borrower, requires a 25% downpayment.

  • If the Non-Occupying Borrower is related to the Occupying Borrower, then they only need to have a 3.5% downpayment.
  • Both the Non-Occupying Borrower’s income & debts, and the Occupying Borrower’s income & debts are used in qualifying for the FHA Mortgage.
Good Luck
May all your dreams and wishes become a reality!
Message 4 of 10
Cromew
New Member

Re: FHA Cosigner Question

This is what I am talking about:


1. Borrower, Coborrower and Cosigner Eligibility Requirements, Continued
4155.1 4.A.1.d Borrower and Coborrower Requirements
4155.1 4.A.1.e Cosigner Requirements
Both occupying and non-occupying borrowers and coborrowers
take title to the property at settlement are obligated on the mortgage note, and must sign all security instruments.
Reference: For additional information on borrower and coborrower eligibility requirements, see HUD 4155.1 4.A.1.f.

Cosigners
do not hold ownership interest in a property
are obligated on the mortgage note and have no liability for repaying the obligation, and
must complete and sign all loan documents except the security instruments.
Reference: For additional cosigner eligibility requirements, see HUD 4155.1 4.A.1.f.


http://portal.hud.gov/hudportal/documents/huddoc?id=4155-1_4_secA.pdf

Sorry if I wasn't clear before (I'm having trouble trying to explain this). My original question still stands, though.

Message 5 of 10
JM-AM
Valued Contributor

Re: FHA Cosigner Question

I havent seen a lender use co-signors in a few years. I guess that actually doesnt mean they arent out there, but I havent used one. They have all required joint applicants to be co borrowers.

 

It still holds true as a co borrower, or co signor, both incomes would be calculated with a FHA loan.

Good Luck
May all your dreams and wishes become a reality!
Message 6 of 10
203bravo
Established Contributor

Re: FHA Cosigner Question

The FHA states, “Co-signers do not hold ownership interest in a property, but are liable for repaying the obligation and must sign all documents with the exception of the security instruments. The co-signers income, assets, liabilities, and credit history are considered in determining creditworthiness for the mortgage and the co-signer must complete and sign the loan application.”

Message 7 of 10
MovingForward_2012
Valued Contributor

Re: FHA Cosigner Question

Right. Understand your parents would effectively act as cosigners but when you fill out the FHA loan app, you will find out that the word, cosigner, appears nowhere on the form so your parents will need to sign as co borrowers on the loan app.

Their DTI won't impact them from qualifying IF your income alone fully qualifies for the loan. Their debt will be counted but the DTI will be based on your income plus theirs so the % will go down from 40%.
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Message 8 of 10
Cromew
New Member

Re: FHA Cosigner Question

MovingForward,

Thank you so much for your response. You answered exactly what I was asking.
Message 9 of 10
MovingForward_2012
Valued Contributor

Re: FHA Cosigner Question

You're welcome. Glad I was able to help. :-)
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Message 10 of 10
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