Mortgage Guidelines On Adding Co-Borrower To Qualify For Home Loan
This BLOG On Mortgage Guidelines On Adding Co-Borrower To Qualify For Home Loan Was UPDATED And PUBLISHED On July 7th, 2020
Adding co-borrower to qualify for home loan is done because the main borrower does not qualify with income.
- Adding co-borrower to qualify for home loan is normally done because of the borrower having higher debt to income ratios
- A spouse can be a co-borrower on a mortgage loan
- Spouse does not need to be if the main borrower qualifies by themselves
- If a mortgage loan borrower is not married and does not qualify due to income, certain loan programs will allow a non-occupant co-borrowers
In this article, we will discuss and cover Mortgage Guidelines On Adding Co-Borrower To Qualify For Home Loan.
Adding Co-Borrower To Qualify For Home Loan When They Are Non-Occupant
FHA allows non-occupant co-borrower or multiple non-occupant co-borrowers to be added on the main borrower’s mortgage loan
- Non-Occupant co-borrowers are added so they can qualify for income and meet the necessary debt to income ratio requirements
Non-occupant co-borrowers needs to be related to the main borrower by law, marriage, or blood to qualify for 3.5% down payment FHA purchase loans.
Who Can Be Added On As A Non-Occupant Co-Borrower
Here are folks who are related to main borrowers by law, marriage, blood who can qualify as non-occupant co-borrowers
- parents and step-parents
- children and step-parents
- grandparents and step-parents
- aunts, uncles do not meet qualification requirements
- in-laws can all qualify to be non-occupant co-borrowers
If non-occupant co-borrowers are not related to the main borrower, FHA requires 25% down payment:
- Conventional Loans does not have the same guidelines as FHA on non-occupant co-borrowers
- No relation to the main borrower is required on conventional loans
- VA and USDA does not allow non-occupant co-borrowers
- Only married spouses can be co-borrowers on VA and USDA Loans
Non-occupant co-borrowers are on the note of the mortgage but not on the title of the home.
Adding Spouse As Co-Borrower On Mortgage
Many married home buyers like both to be on the mortgage loan.
- Adding co-borrower to qualify for home loan is welcomed with married folks
- However, this is not necessary if only one of the spouse qualifies for the home loan
- Adding co-borrower to qualify for home loan is only necessary if the main borrower has a higher debt to income ratios and would not qualify by themselves
- If a married couple applies for a mortgage, only one spouse can be on the mortgage loan but both of them can be on title to the home
- If one of the married spouses can qualify for a home loan just with their income and does not need the other spouse for income qualification purposes, then the one person can just be on the mortgage loan and not the other spouse
- Both will be on title to the home
- If one of the married person is a housewife and does not work, there is no need to be added on the mortgage loan
They can be added on the mortgage loan as a co-borrower if they want but that serves no purpose since they have no income and will only add liability.
What If Co-Borrower With No Income Has Great Credit Scores
If a borrower has a co-borrower such as their husband and/or wife added on the mortgage loan as a co-borrower who has great credit scores but no income, that will not help.
- Mortgage lenders will always use the middle credit score of the lower of the two borrower’s credit scores as the qualifying credit score
For example, if the income-producing main borrower has the following credit scores:
- Transunion 700
- Experian 650
- Equifax 600
The lender will go by the Experian middle credit score of 650:
Adding Co-Borrower To Qualify For Home Loan: Case Scenario
If the spouse of this borrower is a stay at home housewife with no income but her credit scores are the following:
- Transunion 800
- Experian 750
- Equifax 700
The non-income producing spouse middle credit score is 750
- However, the main income-producing borrower’s middle credit score of 650 will be used since the main borrower has the lower of the two borrower’s credit scores
Bottom line is that the non-income producing co-borrower does not need to be on the mortgage loan since they will be of no help and it will just add more liability in the event if the home ever forecloses.
Only One Borrower On Mortgage If Property Ever Forecloses
If a married couple does not add a co-borrower on the mortgage and if the property ever forecloses, the spouse that is not added on the loan can qualify for a mortgage loan without the mandatory waiting period after foreclosure even though they may be on the title of the foreclosed home.