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FHA and Non-Occupying Co Borrower

Hey guys. I'm 24 years old and just starting the process of looking into purchasing my first home. I already have over $6000 in the bank for down payment and closing costs. I'm looking at spending under $100,000 around the Twin Cities suburbs in MN. I have been at my only employer for 8 years and have excellent credit. My income isn't very much so I'm looking into an FHA loan with a non-occupying co borrower (my parents.) My parents own their own home, have some debt, both work full times with excellent credit. I'm not looking to work my hours until mid 2015 when my son starts kindergarten. But I want to purchase now while the market is slowly getting better. I was wondering if I'm ever allowed to take my parents off my loan/mortgage once I start working full time. I don't want them to be attached to it forever just need their help to get me started. Any extra help/information would be great. Thanks in advance. Tanya
  • August 21 2013 - Eagan
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Answers (13)

Hi Tanya,

If you are looking to spend under $100,000 and you are a first time home buyer, you should look into the programs available through Minnesota Housing Finance Agency. This is the government agency that provides assistance for first time home buyers in Minnesota. They have some great programs that may enable you to purchase without your parents help. If you want some help navigating them, feel free to contact me directly. I am not a lender, I am a Realtor, but I have a lot of experience with their programs and my clients that have taken advantage of the programs are very happy with them. With $6000.00 available for a down payment you may be able to do a preferred risk sharing program which may eliminate the need for mortgage insurance. That will save you almost $100.00 a month!!

Otherwise, if you want to purchase with your parents at this time, you can always refinance down the road to get them off the title. :-)

Let me know if you need any help!
Amy
  • August 21 2013
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Profile picture for daveskow
your parents  will always be  " connected " to loan  until the  loan is  paid off  ( via being refinance or  the home being sold)
  • August 21 2013
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I agree with Amy. You should qualify for down payment assistance if that helps at all, otherwise you can refinance down the road and take your parents off the loan.

The only problem is that interest rates are rising, and in 5 years? That could be pretty yucky. I would not be shocked to see them in the 7's at all. No one has a crystal ball, but I do believe regardless we can be fairly certain that they will be higher than today.

Therefore, it may be a better situation if your parents purchase outright FHA and you assume the loan 5 years down the road. Achieves the same outcome but you still get to keep the great interest rate. 

Only way to know the better choice is run through some scenarios with a loan officer. If you want a referral just contact me through my icon.

~Chris
  • August 21 2013
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Hi Tanya. The only way you will be able to take your parents name off the loan is to refinance into a new loan down the road.  This may not be worthwhile as rates would likely be higher at that later point in time.
On another note, we sometimes can get people in your situation qualified for a conventional loan with the parents co-signing as non-occupants. It depends on the whole profile, but it can be done.  A conventional loan will have less costly mortgage insurance than FHA, saving you money in your total monthly payment. Plus the mortgage insurance eventually drops off on a conventional loan whereas it remains for the life of the loan with FHA.
Feel free to contact me if you want to explore these option more in depth.  Though I now work/live in TN, I lived most of my life in MN and still help many people with financing in that state. Our company is also based out of Wisconsin. [Spam content removed by Zillow moderator due to violation of Good Neighbor Policy.] My profile is not completely set up on Zillow just yet since I just joined a few days ago, but I have been in the mortgage business for over 17 years and would love to help you out if you are interested. I guarantee you will be well taken care of and get one of the best deals available anywhere. Tom
  • August 21 2013
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In addition to being able to refinance them off the loan, another option is you have them "assumed" off the loan. You do this by contacting the assumptions department for who is servicing the your loan.

This can be useful in lieu of refinancing, when interest rates are higher than the rate you currently have. This also is normally less expensive than refinancing.

If you are interested in utilizing financing through the Minnesota Housing Finance Agency, you will want to complete home buyer education through Home Stretch, so you can receive a certificate of completion that is required for use of that program.
  • August 21 2013
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Thanks everyone.. Everyone brought up down payment assistance. I guess my next question is. My parents have an FHA loan on their home (located in Dakota County) and that's the area I'm looking into purchasing a home myself. Can I qualify for down payment assistance and a non-occupying co borrower? Didn't know if this would work because  if my parents are on the loan they are technically not first time home buyers. Do I have to re-pay down payment assistance over a certain period of time or how does that work?
  • August 21 2013
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Hmmm yea that might make things challenging because they can't have 2 FHA loans. You probably won't qualify for DP assistance if they are used as a co-borrower due to adding their income and assets.

If you were to go solo by yourself the DP assistance is forgivable 100% after a certain many years (5 or 7 for example).

At this time you should really sit down with a loan officer. You can tell it starts to get a little complicated!
  • August 21 2013
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Hi Amy, I think you should start with a mortgage professional who works with buyers like you.  We work with several who will lead you through the various DP assistance programs.  DP programs vary concerning repayment.  Many are a no interest second that are all or mostly forgiven after a period of time, usually around seven years.  To remove parents from financing would require you to qualify for refinance on your own.  Some lenders are hesitant to let anyone off the mortgage so choose your lender accordingly.  Please call / email anytime if you have questions.  Good luck with house hunting!
  • August 21 2013
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Hi again Tanya!

MN Housing has all kinds of programs. Some need to be repaid and others do not. Give me a call or email (my contact info is on my profile) and I would be happy to walk you through the options.

Amy
  • August 21 2013
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Profile picture for Furlong Team
Lenders don't want to release anyone from the note, so the likely only way to get them off the loan would be to refinance.  They make the loan to you with certain measured risks and by signing your parents off the note, the risks increase.

Are you certain that you would need a co-signor?  It seems from the information you provided that you are well qualified to purchase a home on your own.
  • September 03 2013
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I work part time at a grocery store. According to different mortgage calculators online I can afford about $45,000. I also do some nannying/babysitting on the side which brings me in at least $500 a month (but it's unclaimed income). So I think that's why I will need my parents help to qualify for a mortgage.
  • September 04 2013
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Profile picture for Furlong Team
Most mortgage programs now limit your debt to income ratio to 45%.  So, take your gross monthly income, multiply that by .45 and the result is the maximum total of all your monthly loan liabilities including the new mortgage payment (with property taxes and insurance).

For your parents, my advice to them is to not be a co-borrower on the loan unless they agree to accept secondary responsibility for the payments if you are unable to make them.  I would also advise them not to plan on being relinquished from that responsibility until the mortgage is paid in full.
  • September 04 2013
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My husband acquired a mortgage shortly before we were married. The loan changed last minute and they wanted a CO signer. When they went to sign the papers his mother was listed as a CO borrower. We are paying off the house next month. Is she still on the deed? How do we get her name off the house now?
  • August 12 2014
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