Co-Signing And Debt To Income Ratio Are Affected On Purchase

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Co-Signing And Debt To Income Ratio Are Affected On Purchase

This BLOG On How Co-Signing And Debt To Income Ratio Are Affected On Purchase Was UPDATED On September 7th, 2018

Many folks get asked to be co-signers by family members and relatives because they cannot qualify with income:

  • Co-signing for a relative and/or family member has its rewards
  • But yet there are risks associated with co-signing for other such as the following:
    • auto loan
    • mortgage loan
    • any other loans
  • The rewards are co-signers are helping a loved one get a loan where without co-signing they would probably not have qualified
  • On the flip side, co-signing for a loan can have devastating negative factors on the co-signer
  • This is often the case if the main borrower is late on their monthly payments or default on their loan.

Defaulting On A Home Loan And Co-Signer

If main borrower defaults on their loan, then the creditor will come after co-signers for payment. Technically, co-borrowers are liable for the monthly payments and the loan.

  • Many folks who plan on purchasing a home are concerned about co-signing and debt to income ratio when it comes for them to qualifying for a mortgage in the future
  • The good news is that co-signing and debt to income ratio calculation can have no impact on the co-signer after 12 months
  • Many folks help family members and relatives by being a non-occupant co-borrower on a home purchase
  • The Federal Housing Administration (FHA) allows non-occupant co-borrowers from family members for home buyers who have higher debt to income ratios or those with no income verification

Co-Signing And Debt To Income Ratio On Home Purchase

Non-Occupant co-borrowers  who need to qualify for their own mortgage, the monthly housing liability for the mortgage co-signed is exempt from their new lender under certain conditions:

  • As long as co-signer can provide them that they are not liable
  • This proof can be provided by providing 12 months cancelled checks from the main borrower for
  • As long as main borrower can provide past 12 months timely cancelled checks and/or bank statements
  • That payment will not be used to calculate co-signer debt to income ratios

Other Installment Loans Co-Signed

Co-signing and debt to income ratio does not just apply for mortgages.

  • Any other installment loans such as the following:
    • automobile loans
    • student loans
    • other loans
  • The above co-signed loans can be exempted from debt to income ratios
  • This is as long as co-signer can provide 12 months cancelled checks and/or bank statements by main borrowers
  • Mortgage Underwriters are very strict in requiring 12 months consecutive prior cancelled checks
  • Any gaps in the 12 month period will automatically disqualify this exemption
  • For example, if main borrower for has paid an automobile loan with checks for six months and on the 7th month has paid it with cash but has continued paying with checks on month 8, month 9, month 10, month 11, and month 12, this will not qualify

Loans Under The Borrowers Name But Paid By Someone Else

There are situations where the mortgage borrowers has a car loan or other loans under their names only but the monthly payment is paid by someone else.

  • If this is the case, the mortgage applicant is not liable for the monthly debt
  • The monthly payments will not be calculated towards qualifying their debt to income ratios
  • The person that is actually paying for the monthly debt needs to provide 12 months cancelled checks and/or bank statements of on time timely payments in past 12 months
  • Situations like this happens all the time
  • Example is when parent might purchase an auto under their name but their son or daughter is the person actually making the monthly payment

Installment Loans Under 10 Months

Borrowers with installment loans under 10 months can get that monthly payment excluded from debt to income ratio calculations:

  • However, auto lease payments do not count
  • If borrowers has a automobile monthly payment of $400 per month and have less than ten months left on it, then this payment is discounted for calculating debt to income ratios by underwriters
  • However, if this $400 per month automobile payment is a lease payment, then this exclusion does not apply
  • Lenders view that with a auto lease payment, the person will get another automobile lease after the current lease payment terminates

Home Buyers who need to qualify for home loans with a direct lender with no lender overlays on government and conventional loans can contact us at The Gustan Cho Team at Loan Cabin Inc. at 262-716-8151 or email us at gcho@gustancho.com.

Gustan Cho

www.gustancho.com

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