Lender will offer FHA 3.5% down on SFR but not multi?

Question

Hello,

I recently met with a mortgage lender who prequalified me for a $250,000 FHA with 3.5 % down for an SFR. If I were to try and purchase a multi however they told me that they would want 20 % down. I would be living on the property, but I do have my father has a co-borrower non occupant. Doing some research on the FHA site it looks like a non occupant co-borrower would only allow 75 % loan to value, but there's an exception to having a family co-borrower, which would permit the maximum financing. Is this something that is up to the lender's discretion and is something that most lenders are going to offer? Or should I find another lender and if so does anyone have any recommendations in the greater Boston area?

Stephanie P. · Answer

The FHA guideline for non-occupant co-borrower states:

"1 Unit properties only.  Max mortgage is limited to 75% LTV unless  non occupying co-borrower's meet FHA definition of "family member."  Seller cannot be non-occupant co-borrower.  Non-occupant co-borrowers may be added to improve ratios.  Non-occupant co-borrowers cannot be used to overcome or offset borrower's derogatory credit.  The non-occupying borrower arrangement may never be used to develop a portfolio of rental properties.  The financial contribution by the non-occupying co-borrower and the number of properties owned may indicate family members are acting as "straw buyers". "

https://hudgov.prod.parature.com/link/portal/57345/57355/Article/8477/Does-FHA-allow-non-occupying-co-borrowers-on-a-multi-unit-property

Hope that helps answer the question

Stephanie

Chris Mason · Answer

If you can swing 5% down, find a lender licensed in Mass that'll talk to you about Freddie Mac Home Possible.

Mitch Stanley · Answer

Hi, I would talk to several other lenders incl Mortgage Broker & Your local Credit Union. The issue may be your father  being a co-borrower.  I'd go back and ask the lender you prequalified  with what would the loan terms .

Good Luck

Stephanie P. · Answer

@Alex Fredette  Essentially it says what I wrote in the first reply, but it's from the FHA news blog.

http://www.fhanewsblog.com/2011/05/fha-loans-non-o...

FHA requirements state “If the LTV exceeds 75%, a mortgage with non-occupying borrower(s) is limited to a one-unit property.” A parent and child would not be allowed to purchase a multi-unit property together with 100% maximum financing. What’s the reason for this rule?

The FHA forbids a non-occupying co-borrower arrangement in order to purchase investment properties or rental units. The co-borrower relationship must be used for an occupying borrower when taking advantage of the family status rule that allows the maximum FHA loan amount.

With that in mind, the FHA requires the co-borrower’s signature in part to keep the system honest. According to FHA rules,”The non-occupying borrower arrangement may not be used to develop a portfolio of rental properties. The financial contribution by the nonoccupying borrower and the number of properties owned may indicate that the family members are acting as ‘strawbuyers.’ ”

Michael Cohen · Answer

FHA guidelines:

When there are two or more borrowers, but one or more will not occupy the property as his/her principal residence, the maximum mortgage is limited to 75% loan-to-value (LTV). However, maximum financing, as described in HUD 4155.1 2.A.2, is available for

• borrowers related by blood, marriage, or law, such as

• spouses 
• parents-children 
• siblings 
• stepchildren 
• aunts-uncles, and 
• nieces-nephews, or

• unrelated individuals who can document evidence of a longstanding, substantial family-type relationship not arising out of the loan transaction.

Alex Fredette · Answer

@Stephanie Potter Thanks for the reference. The FHA site did not specify units in the article I found.

Ricky Beliveau · Answer

From my experience both borrow and co-borrower would need to be occupants for FHA multi family. I have a lender I highly recommend who can answer all your questions and has done FHA loans for me and 5 people in my network. Send me a DM

Lender will offer FHA 3.5% down on SFR but not multi?

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