Can first-time home buyers use co-signers for FHA loans?

Asked by Shannon Proverbs, Sacramento, CA Tue Jan 26, 2010

I am a young professional interested in buying her first home. I make about 48K a year for starters, and only have 2 student loans as revolving credit. I'm still trying to rebuild my credit since I messed it up in college with collection accounts.

I am interested in an FHA loan. I understand you need a 620 and 3.5% parents have something like a 750 credit score and have owned 4 homes...would I be able to have them co-sign without adding them to the mortgage? If I added them to the mortgage, would that not qualify me for 1st-time home buyer credits/ or FHA?

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Evagail, Home Buyer, Dallas, TX
Wed Jul 22, 2015
Cosigning means that you are legally responsible if the the house mortgage does not get paid. It also means that if you buy again, you must be able to qualify for all the houses that you "own" at the same time under your income. This can make it really hard to buy even with 20% down unless you meet the qualifying ratios.

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3 votes
..., , Lexington, MA
Mon Feb 22, 2010
Hi Shannon!

Yes! You can use co-signers (non-occupant co-borrowers) AND qualify for the first-time homebuyer credit AND for FHA financing.

Kudos to you for taking the right preparatory steps toward purchasing your own home! I know it can be exciting and confusing at the same time.

You’re right to get your parent on board with an FHA loan as you they can be of more help with an FHA loan then with conventional loans. Depending on the area where you wish to purchase you could also consider other government (e.g., USDA or VA) loans.

All loan programs look at the lowest credit scores. If your score is below 620 I can still be of help as some government programs still allow lower scores.

One other program you may wish to consider are properties that had FHA financing but were foreclosed. These are called HUD REOs (HUD is the agency that oversees FHA; REO is a general term for Real Estate Owned by a bank.) HUD uses vendors to list these properties. Any real estate agent can help set up an appointment for you to see and bid on them. In your area you can visit for a list of HUD REOs. I’ve financed a few of these and know that with some you can have less than 3.5% down payment, but plan on that 3.5% anyway as not all HUD REOs qualify for that program.

I hope this helps! Let’s keep in touch!

Thanks – and happy househunting!

3 votes
, ,
Sat Jan 30, 2010
Step one: Have lender run your credit. If you still have active collection accounts that are not medical they will need to be paid before closing. Discuss strategy with lender
Step Two: Providing your credit will work, have lender qualify you based off of your income. Do you have a two year history of working?
Step Three: If your income is not enough then you would want to put your parents on the loan. You would still be a first time home buyer. They would be considered non occupant co borrowers.
Generally I try to not put the parents on the loan unless we have to. You are qualified off the lowest median fico score. Meaning that even if your parents score is 750 we will be basing our deceision off your score. There score will be a compensating factor and nothing else. Realistically you should want to qualify off your income only because you are the one who will be making the payments.

Feel free to contact us. We do a ton of FHA and can walk you through the steps and get you on a path.
1 vote
Im living in a house that we want to buy we have did alot of work on it are scores are really low bit we have someone thats willing to co sighn how do we go about this yhe loan would be 17.000 thats the purchase price. Thanks sue
Flag Wed Aug 16, 2017
Randall Ortiz, Agent, Sacramento, CA
Tue Jun 28, 2016
Yes you can use a co-signer for FHA loans. I'm a loan officer in Sacramento, contact me if you still need help with your loan.
0 votes
my husband bought a house with my brother in law....after the year he turn the house over to my husband and he needed a cosigner so he put me......can I still buy a house as a first time home owner ?
Flag Sun May 21, 2017
Jennifermene…, Home Buyer, Sacramento, CA
Mon Jun 20, 2016
i have a 620 score would like a home and my fiance has already had a fha. was wondering if i should apply without him or have him added as a co-borrower his score is about 740. also he currently owns a fha home and we r trying to buy our home while his is for sale.
0 votes
Benjamin Gor…, Home Buyer, White City, Tulsa, OK
Sun Mar 31, 2013
Hello i am interested and refinancing my mother in law home but have a credit score of 642 and I have never had a credit card or anything so i have no revolving credits is there a way that i can have a co-signer with a 770 credit score and not have to put money down and still be consider a first time home buyer and not have the co-signer on the mortgage.
0 votes
Chris Jensen, , Pleasanton, CA
Sun Mar 14, 2010
Hi Shannon,
You may have a few options. And it seems like you have done your homework..
First time buyers programs are great. Sometimes you can even find layered financing, depending on your city. I may be able to give you a referral who can help you with your collection accounts, looking into those accounts may be an easy way to raise your score!
FHA may be the way to go. As well as other options.

Do you have an agent your working with yet?
If your interested in running some numbers and getting pre-qualified feel free to give me a call.

Chris Jensen
Sr. Loan Officer
Bank of Commerce
925872.2626 cell
0 votes
Sylvia Barry,…, Agent, Marin, CA
Mon Feb 22, 2010
Hi Shannon:

Yes, you can. We just closed a deal where the first time homebuyer had to get her mother to co-sign in the middle of transaction for an FHA loan. It caused a lot of delays but with a lot of communication, ti worked. The buyer was thrilled.

It's good that you get this handled beforehand so there is no surprises when you found the house you want to buy.

Sylvia Barry
Marin, Sonoma Real Estate
Frank Howard Allen Realtors
(415) 717-0293
0 votes
Lorie Gould, Agent, Duluth, GA
Thu Feb 11, 2010

First and foremost get with a reputable lender and complete an application to determine if you need a co-signer. If a co-signer is needed FHA does allow for a co-signer. If you need a co-signed to obtain a mortgage there is no way to have a co-signer and the co-signer not be on the loan... the whole purpose for a co-signer is to better secure the debt for the bank. If you default they have your parents to collect from.

For the first time home buyer tax credit, you are correct, all those named as buyers in the transaction have to be first time home buyers so you would not qualify for the tax credit if your parents need to buy the home with you and that is exactly what a co-signer is doing.
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0 votes
Barbara Van…, , Folsom, CA
Tue Jan 26, 2010
Hi Shannon ~

The answer to your question is Yes ... FHA does allow for a non-occupying co-borrower on a loan. Any borrowers who is used to qualify for a loan will also be on the mortgage for as long as that mortgage is in place. Sounds like you are asking this question because you don't think you can qualify on your own. Let's take a couple steps back because you may be pleasently suprised to learn you have other options than a co-borrower.

Determining what your qualifying FICO score is and where it needs to be is an important step. A mortgage advisor teach you how to increase your FICOs if needed. You will also learn if you have enough tradelines or need to use alternative tradelines to meet FHA guidelines. You will want to learn the best way to deal with the collections. Depending how old they are, you may be advised not to pay them off before you buy a home because doing so would drop your FICO's. That doesn't mean you should not pay them ... it just means being strategic about when to do it.

The minimum down payment for FHA is 3.5 percent. All the down payment can be "gifted" by your family and they don't have to be on your loan to do it.

Your gross monthly income is used to qualify minus any monthly revolving or installment debt. If your student loans are showing a payment due on your credit report, that info will be used to determine your debt-to-income (DTI) ratio. If your student loans are deferred and no monthly payment appears on your credit report, we will have to manually factor in a monthly payment of 1.25-1.50 percent of the outstanding balance.

FHA wants a borrower to have 2 years of steady employment. If its not with the same employer, it needs to be in a similar line of work. If you have less than 2 years of employment, but graduated from college and went to work in the field associated with your degree, there may be a exception to the 2 year rule.

Being a first time home buyer has no impact on whether or not you will qualify for FHA financing.

The best place to start is meeting with a mortgage advisor to get your questions asked, learn more about your financial picture and help you put an action plan in place that will result in accomplishing your objectives.

To Your Success,

0 votes
Tamara Dorirs, Agent, Carmichael, CA
Tue Jan 26, 2010
Hi Shannon, you got some great answers below. However, it alls boils down to this: are your folks willing to co-sign for you?

If they are, you could always, down the road, refinance and take them off the loan. The fact that they have great credit would definately make you a stronger buyer, but you didn't mention what your FICO score was. While it's true that you need good credit these days, sometimes issues can be worked around.

Your very best bet is to talk to a lender. A good lender can talk to you over the phone and tell you your options. Since you're a first time buyer, make sure you work with a lender you trust....if you'd like a couple contacts, just let me know as I have a few who are very ethical and strong with FHA loans.

Also, we did a first time buyer recording a couple weeks ago that might be helpful to you... check it out if you like.

0 votes
Steven Ornel…, Agent, Fremont, CA
Tue Jan 26, 2010
Hi Shannon, Sue has answered your question well, so I won't reiterate what has already been provided, but here are a few clarifications:

In the Non-FHA world there is no such thing as a defined “Co-signer”, there is only a Borrower and Co-borrowers. However, in the FHA world Co-signers are additionally defined. The differences are covered below:

Borrowers and Co-Borrowers take title to the property, are obligated on the mortgage note and must also sign the security instrument. The Borrower/Co-Borrower’s income, assets, liabilities, and credit history are considered in determining total creditworthiness of the transaction.

Co-signers DO NOT hold ownership interest (title) in the property, but are liable for repaying the obligation and must sign all documents with the exception of the security instrument. The Co-signer's income, assets, liabilities, and credit history are considered in determining creditworthiness for the mortgage and the co-signer must complete and sign the loan application.

You will need a tax professional to confirm this; however, using the FHA loan, given that your parents as co-signers are not on Title, MAY allow you to claim the entire Tax Credit if desired.

Tax Credit Summary:

Best, Steve
0 votes
What if the co signer already has a mortgage, can he still co sign for his son?
Flag Sun Mar 26, 2017
Sue Archer R…, Agent, Palm Harbor, FL
Tue Jan 26, 2010
If they co-sign, they are added to the mortgage. If you default, for any reason, it would negatively affect their credit score. One other item to consider on that ...the lender considers all parties 100% liable for the loan, so if one person doesn't pay, the other person owes ALL of it, not 50%.

The first time homebuyer credit can be taken by one or all buyers for a total of $8,000. This is a question for a CPA or tax attorney but I believe that you can apply for the whole amount. Call Ed Cook at 705-4958. He'll answer it for you in a flash.

While there are many reasons to buy with your parents, and why not to, there's more to the discussion that what is discussed here. I'd call a reputable lender and get your questions answered. It may be something as simple as opening another credit line, or some other minor thing like that to give you a better position, who knows? Your score is primarily the last two years payment history unless you have some active collections from previous years... You can call Mark Holmes at American Pacific Mortgage and he can help you figure it out. (916) 837-4360.

Good luck!
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