If you have a relative that might be considering buying a first home, it’s very possible they’re having problems raising enough funds for a down payment and closing costs and as housing price continue to recover their losses, sometimes they find their income isn’t enough to help them qualify. That’sFHA Quirk where you can help, if they take advantage of a couple of quirks FHA loans have.

FHA loans are government guaranteed and provide compensation to lenders should an individual loan go into foreclosure. Yet they’re only to be used for a primary residence. Real estate investors can’t use them unless they’re a cosigner on an FHA loan for a relative.

FHA loans only need 3.5% down and may all be in the form of a gift. Closing costs may also be paid for by a relative, a seller in the transaction or even with a lender credit. All the primary borrower needs is a minimum $500 investment. If you cosign on an FHA loan, the primary borrower is eligible for lower rates compared to what an investor can get. Your income and credit also contributes to the transaction helping those having trouble getting qualified. For instance, someone who has income but can’t be used such as new bonus or commission income or income from a side business.

All other loan types require a minimum down payment from the borrowers of at least 5.00% plus qualifying on their own, without the benefit of the additional income, making a cosigner useless.

In this manner, using an FHA loan, you’re part owner of the property and the relative pays the mortgage. If you give the down payment funds as a gift and not act as a cosigner, you won’t have the benefit of future appreciation. However, if in fact you are a non-occupied cosigner, at the future sale of the property you should expect part of the proceeds in exchange for your co-signature.