Can Co-Signing Affect DTI on Home Purchase

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 own 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 folks do not want to ask a family member to co-sign for them.

Does Co-signing Affect Getting a House?

One of the frequently asked questions at Gustan Cho Associates, Iinc. by our viewers and borrowers, is does co signing affect buying a house. Nick Aquino and his wife Brenda Aquino recently bought a house in Las Vegas. Nick is a loan officer and business development manager for a mortgage company. Even though he is in the mortgage industry, he was nervous of getting a mortgage on his own 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. Nicholas Aquino explained the answer of can co-signing affect DTI on home purchase:

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. In the following paragraphs, we will discuss and over can co-signing affect DTI on home purchase for the non-occupant co-borrowers own home down the road.

How Co-Signers Affected

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 the question of being a co-signer affects debt-to-income ratios for a 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 a co-signed loan

12 months of canceled checks and/or bank statements is required by main borrowers/

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 a 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 the lender 12 months of canceled checks and/or bank statements

Debt-to-income ratios when getting qualified for a home loan 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

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

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 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

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 canceled checks and/or 12 months of bank statements from the main borrower who is actually making the payments. 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
• co-signer can request 12 months of canceled checks and/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
• show proof main borrower has been making the payments for the past 12 months

Proof can be provided by providing 12 months of canceled checks and/or 12 months of bank statements by the main borrower.

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 of 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 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 and/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.