The FHA Family Member Exception That Changes Your Non-Occupying Co-Borrower LTV
A father near Conway, South Carolina was told he would need to cover twenty five percent of his daughter's home purchase price out of pocket, simply because he was co-signing her FHA loan without living in the home himself. He had already started planning for that check before anyone mentioned the exception that applied to his exact situation.
Where The 75 Percent Number Comes From
FHA treats non-occupying co-borrower transactions as higher risk by default, capping loan-to-value at 75 percent in most cases. If you have researched FHA co-signing arrangements before, you have likely run into this figure and assumed it was fixed. It is the baseline, but HUD 4000.1 carves out a specific exception for family transactions that many loan files never get evaluated against.
The Exact Guideline Language
The governing text reads: "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."
Notice the structure: it is not "family members sometimes get a better rate." It is a defined increase, from 75 percent to 96.5 percent, triggered by a Family Member relationship, and blocked by exactly two conditions.
Who Counts As A Family Member Here
FHA's Family Member definition for this purpose covers the kind of relationship most people would expect: parents and children among them. If you are a parent co-signing for a son or daughter who will occupy the home, that relationship typically satisfies the Family Member requirement. The question is never really whether you're related. The question is whether the two exceptions apply to your deal.
Running The Two Exceptions Against A Real Scenario
Take a father, call him Marvin, co-signing on his daughter's FHA purchase near Conway. She will occupy the home. He will not. First exception check: is a family member selling this home to a family member who will be a non-occupying co-borrower? No, the sale involves no family seller at all. Second exception check: is this a two- to four-unit property? No, it is a single family home. Both exceptions clear, meaning the file should be evaluated at up to 96.5 percent LTV rather than the default 75 percent.
Where These Files Go Wrong
The most common mistake is a loan officer quoting the 75 percent default without checking whether the Family Member exception applies at all. If nobody runs the two-exception test, a qualifying borrower can be quoted a down payment four to five times larger than necessary. That single oversight can price a family out of helping a relative buy a home, or send them searching for cash they don't actually need to produce.
The Question To Bring To Your Lender
Before accepting a 75 percent LTV quote on a non-occupying co-borrower FHA file, ask this directly: are my co-borrower and I Family Members under FHA Section II.A.2.b.ii.B, and does this transaction avoid the two exceptions, a family sale to a non-occupying co-borrower, or a two- to four-unit property, so that the maximum LTV should be 96.5 percent instead of 75 percent? Getting a clear answer to that one question, in writing, before you proceed, is the single most important step in this type of transaction.
If you want this run against your specific family situation, call me, Jason Sharon, at Home Loans Inc, 843-LOW-RATE. Home Loans Inc - Jason Sharon, Mortgage Broker. Company NMLS #1728740, Jason Sharon NMLS #1281448. Equal Housing Opportunity.