The purpose of the FHA non occupying co borrower loan (also referred to as the "kiddie condo" loan) is to allow one family member to have a joint interest in property, while enabling another family member to attain home ownership. This type of FHA mortgage loan is typically used by parents and children. The parent will sign as an FHA non occupying co borrower so the child may obtain his or her first home or college housing.
Familial Ties Preferred
A familial relationship between the co borrower and the occupying borrower is highly preferred, although not absolutely required. The co borrower will have a joint interest in the property, while his or her good credit history and income is used to help secure the loan. These FHA mortgages are limited to one-unit properties when the loan-to-value (LTV) exceeds 75%. If the parent is selling to his or her child, then the parent cannot sign as co-borrower for a new mortgage unless the LTV is 75% or less.
FHA Non Occupying Co Borrower Guidelines
There are certain guidelines which must be followed to make this type of loan work. The borrower:
- Needs a Social Security number.
- Must show a two year history of credit, income and assets.
- Can be a permanent resident alien with Green Card information.
- Can also be a non-permanent resident alien if documentation shows legal residency and ability to work in the U.S., but the borrower must be the primary resident and must have a social security number, along with a 2-year credit profile, assets, credit and income.
Occupying Co Borrowers
The co-borrower:
- Takes title to the property.
- Signs all note and mortgage documents.
- Completes a loan application with underwriting of credit, income and assets.
- Is qualified, as is the primary borrower.
- May not be a third party to the transaction, such as an appraiser, the seller or realtor.
Non Occupying Co Borrowers
The non-occupying co-borrower:
- Will not occupy property in question.
- Must have a long-standing familial tie with the occupying borrower. If not, the LTV cannot exceed 75%.
- Must have a primary residence in the United States.
- Signs all note and mortgage documents and completes a loan application with underwriting of credit, income and assets.
The primary purpose of the non occupying FHA co borrower is to strengthen the credit profile to empower another family member to achieve home ownership.
Maximum Financing
Maximum financing is allowed under these stipulations:
- The co-borrower must either be a family member or prove a long-term family-type relationship with the primary borrower. If there is no close personal family relationship between borrower and co-Borrower, the LTV cannot exceed 75%.
- The subject property should be a single family detached dwelling, an approved condominium or a Planned Unit Development (PUD).
- The co-borrower must have a primary residence in the United States.
- A complete credit underwriting analysis will be performed for the non-occupant co-borrower. The income, assets and debt will be included in the loan information and will be weighed equally with the borrower.
Typical Situations for Kiddie Condo Loans
The kiddie condo loan is often used when the occupying borrower:
- Is a college student but makes verifiable income.
- Works for cash income.
- Has not been employed more than two years.
- Recently changed his or her employment field, thus disqualifying his or her allowable income.
- Is self-employed.
- Has no credit and no traditional credit references.
- Has been recently discharged from military but is unemployed as a civilian.
Summary
While FHA does not require the occupying borrower to be qualified, the bank usually does. Sometimes, this loan can be used for refinancing. In certain situations, the non occupying co borrower does not have to be a family member. Each case is different; talk to your local banker to see if your situation qualifies. The provisions in force were created to preclude investors from taking advantage of these loans for purely profit motives.
Visit the HUD & FHA website or your local bank to learn more.
