Co-Signer Affect Debt To Income Ratios

Being a co-signer can affect a mortgage loan applicant from qualifying for a mortgage because the monthly minimum payments will be counted and calculated in qualifying the debt to income ratios of the mortgage loan applicant.  So the answer to the question of being a co-signer affect debt to income ratios for mortgage is yes.

Debt To Income Ratios

Debt to income ratios when getting qualified for a mortgage loan is when a mortgage loan underwriter takes the sum of all of the minimum monthly payments a mortgage loan borrower has and dividing it by the borrower’s monthly gross income.  Let’s take a simple case study on how a mortgage underwriter calculates debt to income ratios.

1. Monthly minimum payments for borrower A is $50.00 per month for Capital One credit card, $50.00 per month for student loan payment, $300.00 per month for Auto Loan, $200.00 per month for child support payment.

2. Mortgage loan borrower’s proposed new housing payment which includes principal, interest, taxes, and insurance is added to the sum of the total minimum monthly expenses.  For this case scenario, lets assume that the principal, interest, taxes, and insurance is $1,000.

3. Lets assume the mortgage loan borrower has a monthly gross income of $3,000.00.

4. The back end debt to income ratios for Borrower A is the sum of all of his monthly payments including the housing payment which is $$1,600.00 divided by borrower A’s monthly gross income of $3,000.00 which yields 53%.

5. The front end debt to income ratio is calculated taking just the proposed housing payment, PITI, and dividing it by the borrower’s gross monthly income where on this case it is $1,000.00 divided by the borrower’s $3,000.00 gross monthly income which yields 33%.

Solutions To Co-Signer Affect Debt To Income Ratios

If you have co-signed for someone and you are not responsible for the monthly payments, the monthly payments can be exempt from your debt to income ratios if you can provide proof by providing 12 months canceled checks from the main borrower who is actually making the payments.  For example, if you co-signed for one of your children on a auto loan and your child is responsible for making the payments, then you can request 12 months canceled checks or 12 months bank statements reflecting that your child is making the payments and you are not.  This is the same if you were a non-occupant co-borrower on a mortgage for someone.  The mortgage payments will not count towards your debt to income ratios as long as the main borrower can provide that they are making the payments and have been making the payments for the past 12 months.

Debts That Someone Else Is Making

If you have debts that is under your name but you are not responsible for the monthly payments and someone else is making the payments for you, this debt can be exempted from debt to income calculations as long as you can provide 12 months canceled checks from the responsible party making the payments.  A perfect example on this type of case scenario is if you have student loans just under your name but your parents are making the student loan payments.  If your parents can provide 12 months canceled checks, the monthly student loan payments will be discounted in your debt to income ratio calculations.  Same goes for car loans or other installment debts except for credit card and revolving debt.

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