FHA Co-Signers & Co-Borrowers Continued 411
This post is a continuation post from FHA First Time Home Buyer Cosigner Kiddie Condo Loan
Most people refer to this loan as the Kiddie Condo Loan because the main concept was to help your children with buying a first house or help out with the housing while your children are gone for college.
Well interestingly enough this guideline also serves another purpose.
Co-Signer / Co-Borrower to help with Income and Debt-To-Income Ratios
I had a client that was having trouble getting FHA approved for his new home purchase. He tried 3 different ways and the 3rd time he finally got approved and here’s how.
1st Time – My client Mr. Livingston was applying for a standard FHA loan, all seemed pretty normal until his Federal Student Loans came up in the Debt-to-income guideline. Mr. Livingston had about 10 outstanding Federal Student Loans. Now normally the student loans will not be counted towards the client’s ratios if the Student Loans were “Deferred Payments”.
When I questioned Mr. Livingston if the Student Loans were deferred, he told me they were but there was 1 problem. The deferrment period was every 6 months instead of every 12 months. Within guidelines we had to count the Student Loans as debt and therefore made Mr. Livingston’s Debt-To-Income too high.
2nd Time (The Family Co-Signer / Co-Borrower) – This time we utilized the Non-Occupying Co-Borrower / Co- Signer of Mr. Livingston’s Father. Per FHA guidelines we don’t have to have the Parent’s to move in this house as the primary residence, they could just help by co-signing for income purposes.
Normally this would work out great! Unfortunately for Mr. Livingston’s situation, his Father actually brought on more debt that didn’t help much on the ratios, even though we were adding more income we still have to include the Father’s debt too.
3rd Time (The Long-Time Friend) – This is very powerful not only is the Co-Signer and Co-Borrower only limited to Family Members, per FHA guidelines you can add Friends too! Mr. Livingston had a life-long friend who agreed to co-sign and help out Mr. Livingston (what a great friend) this time around it worked, the ratios were good and debts were good.
Now the Friend does have the Debt included in his credit report now as a Real Estate Mortgage he owes on. So now if he wants to buy a house, he has to keep in mind to get removed from this loan by Refinancing Out from the loan.