Hi everybody! I am looking at purchasing my first home within the next couple months. I'm facing a roadblock that I would love to get feedback from those familiar with FHA guidelines.
The house I am looking at is a duplex. I plan on house-hacking it. I have a non-occupant cosigner (sister).
2 lenders I spoke with told me I would need 15% down, instead of the 3.5%, as a consequence of having a cosigner.
Then, just today I spoke with a lender who told me those lenders don’t have a clue what they are talking about and he could help me.Why am I hearing different things? Who is right here? Has anyone faced a similar situation? If I need 15% down, what are my other options here?
@Edwin Rajkumar Guidelines from FHA:-
Maximum LTV for Non-Occupying Borrower Transaction
For Non-Occupying Borrower Transactions, the maximum LTV is 75 percent. The LTV can be increased to a maximum of 96.5 percent 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 on a two- to four-unit Property.
Thanks for the response Harjeet.
Does FHA consider cosigner and co-borrower as the same thing? I just need my sister to qualify for the loan amount. She holds no ownership interest in the property and will not be making any of the payments.
@Edwin Rajkumar There is difference in definition for both borrowers but in you case sister is not going to occupied the the property so above guidelines applies.
You are hearing different things, because there are different rules with FHA for a SFR versus a MFR.
If you are purchasing a SFR than you could use your sister as a co-signer.
2 - 4 units requires 25% down if you are using a co-signer, even if it is family.
On another note, you can use 75% of potential rental income on the other unit to apply towards the income to help you qualify.
You would be better off going with Freddie Mac and 15% down using a co-signer for a duplex, if the above option won't work.
Thanks for the response, Jerry. That was helpful. What if, instead of going non-occupant co-borrower, I ask my sister to live with me instead? Does this scenario change things?
@Jerry Padilla, I would qualify alone if I could only wait another 2 months. My commissions are currently not being counted towards my income. I have my eyes on this property that just came on the market and I'm finding myself in a tough spot.
How long have you had commissions for? You would need commissions for a 2 year history.
10 months. I was told 1 year?
But regardless, I was thinking of having my sister as occupying co-borrower. This solves my problem, right?
@Edwin Rajkumar under 2 years and greater than 1 year is an underwriters discretion - but not an automatic approval. It will help your case to have more in reserves and good credit.
Your sister would be required to move into the property to be a co-borrower, and yes that would solve your problem.
Thanks Jerry! One of the lender I talked to said something along the lines of, "we go by primary intention." Aka, since I originally said my coborrower will be nonoccupant, they wont reconsider? Is that true or is it a matter of convincing them/pushing them a bit?
Typically, once you tell an underwriter there is no intention of your sister living in the property, it can be hard to undue, or later convince otherwise.