Gustan Cho The Mortgage Expert,
Publish On: June 18, 2023
In this article, we will cover the topic of whether can co-signing affect DTI on home purchase. There are instances non-occupant co-borrowers love to co-sign for a family member’s home purchase but are afraid it may affect their home purchase down the road. It is often difficult to say no when a family member asks a loved one if they can co-sign for them. Many do not want to ask a family member to co-sign for them.
The co-borrower often is on the spot as well. Non-occupant co-borrowers often do not want to co-sign but, at the same time, want to help their family member. Non-occupant co-borrowers will take on a risk by becoming a non-occupant co-borrower. If the main borrower is late on their monthly mortgage payment, they are on the spot which will hurt their credit profile.
A late mortgage payment is the worst you can have on your credit report. However, if the main borrower can refinance the loan in six months, then the risk if just for the six month. If the main borrower does not refinance and leaves the non-occupant co-borrower on the mortgage loan, after 12 months, the non-occupant co-borrower can exempt the debt with creditors. After 12 months, if the main borrower provides 12 months of canceled checks, the co-borrower will not be liable for the debt when it comes to debt-to-income ratio calculations. In the following sections, we will cover can co-signing affect DTI on home purchase.
Does Co-signing Affect Getting a House?
One of the frequently asked questions at Gustan Cho Associates by our viewers and borrowers are does co-signing affect buying a house.
There are instances where family members lose 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. In the following paragraphs, we will discuss how over can co-signing affect DTI on home purchase for the non-occupant co-borrower’s own home down the road.
Even though he is in the mortgage industry, he was nervous about getting a mortgage because he is a co-borrower on his ex-spouse’s home. However, after researching the topic and getting conflicting answers to the question of can I cosigning affect DTI on home purchase, he finally got the facts. Angie Torres explained the answer can co-signing affect DTI on home purchase.
How Can Co-Signing Affect DTI on Home Purchase
Being a co-signer can affect a mortgage loan applicant from qualifying for a mortgage. This is 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 whether being a co-signer affects debt-to-income ratios for a mortgage is yes. However, a non-occupant co-borrower can qualify for their mortgage after 12 months. Non-Occupant Co-Borrowers must provide their lender proof that someone else is making mortgage payments on a co-signed loan. Main borrowers require 12 months of cancelled checks or bank statements.
Can Co-Signing Affect DTI on Home Purchase Buying Power
The answer to whether co-signing affects DTI on home purchase is yes and no. It will affect co-borrowers in buying their own home if they intend to buy one within 12 months. The answer to the frequently asked question of whether can co-signing affect DTI on home purchase, the answer is YES and NO. It will affect the co-borrower for one year. However, after the main borrower has made twelve timely payments to the mortgage servicer and can provide 12 months of cancelled checks, it will no longer affect the co-borrower if he or she is going to apply for a mortgage.
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 the lender with 12 months of cancelled checks or bank statements.
When getting qualified for a home loan, debt-to-income ratios are when a mortgage underwriter takes the following. It is 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 ratio.
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 are 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 payments.
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
Let’s assume that the principal, interest, taxes, and insurance are $1,000 for this case scenario.
Case Scenario
Let’s assume a monthly gross income of $3,000.00. The back-end debt-to-income ratio 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 by dividing just the proposed housing payment, PITI, by the 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
For 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 the co-signer can provide proof of 12 months of cancelled checks or 12 months of bank statements from the main borrower who is making the payments. Below is a case scenario where the co-signer will not get responsible for being a co-signer when buying a home:
For example, here is a case scenario, if a cosigner has co-signed for children on an auto loan, the child is responsible for making the payments. The co-signer can request 12 months of cancelled checks or 12 months of bank statements reflecting child is making the payments and the 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 under these conditions as long as the main borrower can provide that they are making the payments and show main proof borrower has been making the payments for the past 12 months. The main borrower can provide proof by providing 12 months of cancelled checks or 12 months of bank statements.
Debts That Someone Else Is Making
Those who have debts 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 of cancelled checks from the responsible party making the payments.
A perfect example of this type of case scenario is the following case scenario: student loans under the student’s name. The parents are making student loan payments. If parents provide 12 months of canceled checks, the monthly student loan payments will be discounted in borrowers’ debt-to-income ratio calculations.
The same goes for car loans or other installment debts, except for credit card and revolving debt. For more information about this article or other mortgage-related topics, please contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com.
