Can Co-Signing Affect DTI On Home Purchase

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This BLOG On Can Co-Signing Affect DTI On Home Purchase Was UPDATED And PUBLISHED On August 25th, 2019

Can Co-Signing Affect DTI On Home Purchase
Gustan Cho Associates Mortgage Group

It is often difficult to say no when a family member asks a loved one if they can co-sign for them.

  • Many folks do not want to ask a family member to co-sign for them
  • There are instances where family members lost their relationship because a family member refused to co-sign for them

There are instances where family members said yes to being non-occupant co-borrowers and changed their minds at the last moment.

How Co-Signers Affected

Being a co-signer can affect a mortgage loan applicant from qualifying for a mortgage. This 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
  • However, a non-occupant co-borrower can qualify for their own mortgage after 12 months 
  • Non-Occupant Co-Borrowers need to provide their lender proof that someone else is making mortgage payments on co-signed loan
  • 12 months canceled checks and/or bank statements is required by main borrowers

Can Co-Signing Affect DTI On Home Purchase Buying Power

Can Co-Signing Affect DTI On Home Purchase Buying Power

The answer to the question Can Co-Signing Affect DTI On Home Purchase is yes and no.

  • It will affect co-borrowers in buying their own home if they intend on buying home within 12 months
  • It will not affect non-occupant co-borrowers from purchasing a home if they can provide the main borrower has paid their mortgage payments for the past 12 months
  • The proof is provided by providing lender 12 months canceled checks and/or bank statements

Debt to income ratios when getting qualified for a home loan is when a mortgage underwriter takes the following:

  • the sum of all of the minimum monthly payments of borrowers
  • taking the total of all minimum payments and dividing it by the borrower’s monthly gross income
  • the resulting figure is the debt to income ratios

Can Co-Signing Affect DTI On Home Purchase And How Do Underwriters Calculate Debt To Income Ratios

Can Co-Signing Affect DTI On Home Purchase And How Do Underwriters Calculate Debt To Income Ratios

Let’s take a simple case study on how a mortgage underwriter calculates debt to income ratios.

Monthly minimum payments for borrower A is the following:

  • $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.

Borrower’s proposed new housing payment includes:

  • principal
  • interest
  • taxes
  • insurance
  • homeowners association if any
  • flood insurance if any
  • The above is added to the sum of the total minimum monthly expenses

For this case scenario, let’s assume that the principal, interest, taxes, and insurance is $1,000.

Case Scenario

Let’s assume monthly gross income of $3,000.00:

The back end debt to income ratios for Borrower A is the sum of all 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%
  • The front end debt to income ratio is calculated taking just the proposed housing payment, PITI, and dividing it by gross monthly income

In 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

What is the Solutions To Co-Signer Affect Debt To Income Ratios

Those who co-signed for someone and are not responsible for the housing debt, the monthly payments can be exempt from debt to income ratios if co-signer can provide proof of 12 months canceled checks and/or 12 months bank statements from the main borrower who is actually making the payments.

For example, here is a case scenario:

  • if cosigner who has co-signed for children on an auto loan
  • the child is responsible for making the payments
  • co-signer can request 12 months canceled checks and/or 12 months bank statements reflecting child is making the payments and cosigner is not
  • This is the same if the cosigner is a non-occupant co-borrower on a mortgage for someone

The mortgage payments will not count towards debt to income ratios with these conditions:

  • as long as the main borrower can provide that they are making the payments
  • show proof main borrower has been making the payments for the past 12 months
  • Proof can be provided by providing 12 months canceled checks and/or 12 months bank statements by the main borrower

Debts That Someone Else Is Making

Debts That Someone Else Is Making

Those who have debts that are under their name but are not responsible for the monthly payments and someone else is making the payments for them, this debt can be exempted from debt to income calculations. The debt is exempt from DTI calculations as long as they can provide 12 months canceled checks from the responsible party making the payments.

A perfect example of this type of case scenario is the following case scenario:

  • have student loans just under the student’s name
  • parents are making the student loan payments
  • If parents can provide 12 months canceled checks, the monthly student loan payments will be discounted in borrowers debt to income ratio calculations
  • Same goes for car loans or other installment debts except for credit card and revolving debt

For more information about this article and/or other mortgage-related topics, please contact us at Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email us at gcho@loancabin.com.

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