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My daughter is buying a house with an FHA loan but does not have enough income to qualify, so she needs me as a co-signer. The loan originator is claiming that, by FHAs terms, if I am co-signing, I must also be a co-buyer (eg. I must also be on the deed and sign the mortgage). I have asked our contact at the originator if they can point to the FHA rule or regulation that requires this and she is looking in to it but hasn't gotten back to me yet.

I don't have a major problem with being on the deed - it won't be a deal breaker. But being on the deed does open additional liabilities for me that don't come with any additional benefits. So if I'm not absolutely obligated to do this, I'd rather pass. Has anyone heard of this or know more about it?

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    It makes sense... Why would they give you a loan if you're not buying a house? – littleadv Jan 3 '12 at 20:51
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    Yes, but you don't understand. FHA gives loans to home buyers. If you're not a buyer - they shouldn't, and probably wouldn't, give you a loan. Cosigning is the same as applying for a loan. This particular loan does require you and her to own the property, because its a secured loan. If it was a private loan - they might be OK with only one of the applicants signing the note, but FHA - has its own rules, and in this case it does make sense to me. – littleadv Jan 3 '12 at 22:10
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    Just to reiterate: cosigner is not guarantor. Cosigner is applicant. It doesn't matter how the responsibilities are divided between the cosigners and who considers himself being the "guarantor" and who "the borrower". From the bank (and the FHA) perspective - its all the same. I don't know if its a standard and if its the actual rule, that's why I don't put it as an answer. But, it does make sense to me. – littleadv Jan 3 '12 at 22:14
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    Again - I'm not familiar with the FHA rules. I'm just saying that the distinction you made between your daughter being an applicant and you yourself being a "guarantor" is false - you're both applicants. If the FHA requires the applicant to be the buyer (which I suspect is the case), then you both have to be on the deed. – littleadv Jan 3 '12 at 22:31
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    The FHA is there to achieve certain political goals (build communities, expand homeownership) by assuming some of the risk from the mortgage process. They are willing to accept that risk if it is in pursuit of those goals. Their rules will tend to constrain the mortgages they make to better achieve those political goals. At a guess, this policy is an attempt to subsidize community-building (people living in a home are long-term residents with a stake in the future of a community) while excluding J Random Property Investor / Landlord from their aid. – user296 Feb 3 '12 at 22:02
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The guarantor (FHA) wants to make sure that everyone on the loan has a stake in the outcome of the loan. Should something happen to your daughter the FHA could be left with a loan which you are responsible for but the home which is now owned by someone else. I suspect that legally they would still be able to foreclose and claim the home but my experience tells me that if the new owner got a good enough lawyer they would have a chance of retaining the home. So the FHA would be left unable to recover. By having all parties responsible for the loan on the deed it puts the bank and the guarantor in a better position to recover should some unforeseeable consequence happen. Even if the FHA allowed it I doubt you would find many banks willing to take the risk either. This is simply the banks way of saying sorry its the rules, even though they would require the same thing.

My daughter is buying a house with an FHA loan but does not have enough income to qualify, so she needs me as a co-signer.

Unless you are planning on making the payments for the home as well as cosigning if you help your daughter get this home you may be setting her up for failure. The bank is saying your daughter can not afford the home. Surely she may be able to afford to make the payments when everything is perfect. But think back to when you were her age, how often were things not perfect? How tempting was it to make bad decisions that would have solved an immediate need but would have (and may have) resulted in a worse situation overall? When you own a home those temptations seem far more reasonable than if you are just renting. So if you decide to cosign make sure you are involved in her budgeting and payment process until she is in a situation to refinance the home on her own.

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  • There are 3 components: a note, a deed and a mortgage. Each component is bound to some number of people. Everyone on the note is responsible for its payment. The mortgage secures the note by preventing the deed from being transferred until the note is satisfied. To prevent the deed from being transferred, all the parties on deed must sign the mortgage. So my point is, I don't see where or how there is any less risk to the lender to have me on the deed. – user673 Jan 17 '12 at 18:27
  • Regardless of whether I am on the deed, they a) have me on the note and b) have all the deed holders on the mortgage thus preventing its transfer until the mortgage is released by the note being satisfied. There doesn't need to be any overlap between borrowers and deed holders to secure a note with a mortgage. – user673 Jan 17 '12 at 18:31
  • My specific reason for questioning this is that deed holders have a different domain of liabilities than borrowers. Borrowers basically have 1 liability: payment of the note. Deed holders have a host of other liabilities including property taxes, zoning regulations, criminal charges based on use of the property, slip and fall accidents, etc. Obviously none of these have to do with satisfying the financial obligations that funded the purchase - so taking them on doesn't make much sense if it is not actually adding value for any party. – user673 Jan 17 '12 at 18:35
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    @user673 - The point is that the bank is protecting its interest by making sure you have more than a just a credit score at stake. That is an oversimplification but the bank is aware that you will be accepting the liabilities of owning the property as well. That is probably part of the reason for requiring it. They are not willing to accept just your guarantee of payment. They want your involvement in preventing those types of problems that would make clearing the title so they can sell the house should they be forced to foreclose. – user4127 Jan 17 '12 at 18:41
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Do you realize that by being on the loan and if the lender forecloses on it that it still affects your credit? So many people do not realize the responsibility they are taking when cosigning for another person. It is making you responsible for the loan. If your daughter makes a late payment that is 30 days past due then it affects your credit. I hear so many people who have cosigned for someone else crying the blues when they attempt to apply for a loan and their credit score is affected and then claim they only co-signed for someone else and think they have no responsibility at all and that an exception should be made for them. I would think you would want to be part owner of the property. Then it would give you the power to sell it if your daughter fails to follow through on the payments or God forbid something would happen to her. Maybe your daughter really shouldn't be applying for a loan at all until she can truely qualify on her own.

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  • I have also seen rental applications and other credit apps where they ask you if you are a cosigner on any loans. – Steven Feb 15 '12 at 16:23

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