3. Non-Occupying Borrowers

Introduction

This topic contains information on non-occupying borrowers, including

•	the definition of the term “non-occupying borrower transaction”

•	maximum LTV ratio for non-occupying borrower transaction

•	security instrument and note signature requirement, and

•	LTV for two to four unit properties.

Change Date

May 10, 2009

4155.1 2.B.3.a Definition: Non Occupying Borrower Transaction

A non occupying borrower transaction is a transaction involving two or more borrowers where one or more borrower will not occupy the property as his/her primary residence.

Reference: For a more detailed definition of “non-occupying borrower transaction,” see HUD 4155.1 9.

4155.1 2.B.3.b Maximum LTV Ratio for Non Occupying Borrower Transaction

When there are two or more borrowers, but one or more will not occupy the property as a principal residence, the maximum mortgage is limited to a 75 percent 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
	–	parent-child
	–	siblings
	–	stepchildren
	–	aunts-uncles, and
	–	nieces-nephews, or

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

Note: If a parent is selling to a child, the parent cannot be the coborrower with the child, unless the LTV is 75 percent or less.

4155.1 2.B.3.c Security Instrument and Note Signature Requirement

All borrowers, regardless of occupancy status, must sign the security instrument and mortgage note.

Note: Cosigners do not execute the security instrument, but must sign the mortgage note.

4155.1 2.B.3.d LTV for Two to Four Unit Properties

To reduce risk exposure, mortgages with non-occupying borrowers are limited to one-unit properties if the LTV exceeds 75 percent. The nonoccupying borrower arrangement to assist in financing a property may not be used to develop a portfolio of rental properties. The financial contribution by the non-occupying borrower, and the number of properties owned may indicate that the family members are acting as “strawbuyers.”

4155.1 2.B.3.e Underwriting Criteria for All Non Occupying Buyers

The FHA does not impose additional underwriting criteria such as specific qualifying ratios for the occupying borrower to meet. Lenders must judge each transaction on its merits.