Excluding Debts From Co-Signed Loans To Qualify For Mortgage

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Excluding Debts From Co-Signed Loans To Qualify For Mortgage

This BLOG On Excluding Debts From Co-Signed Loans To Qualify For Mortgage Was UPDATED On August 6th, 2018

Mortgage borrowers who are co-signers on debts often have a hard time qualifying for mortgage loans because the monthly payments of the main borrower is included in the calculations of their debt to income ratios.

  • There are ways of excluding debts from co-signed loans
  • But they are strict and a mortgage loan originator who is planning on excluding debts from co-signed loans needs to carefully examine the payment history
  • Loan officer needs to determine how the debts are paid on a monthly basis by the main borrower and see the paper trail for the past 12 months
  • The main borrower needs to prove that he or she has been making timely payments for the past 12 months with a bank check and/or online via online payment
  • Cannot have the main borrower be late on any payments in the past 12 months or the deal is off
  • Cannot exclude debts from con-signed loans if there has even been one late payment
  • Borrowers who paid cash on co-signed loans cannot have the debts of the co-signer excluded from co-signed loans
  • Cash payments does not count
  • All monthly payments will need to be documented

Monthly Debts That Someone Else Pays Exempt From DTI

There are so many cases where I get calls where a borrower gets a last minute denial due to their loan originator making the mistake. Loan officers can make mistake of excluding debts from loans that is just under borrower’s name but someone else has been paying for the monthly debt payments for the past 12 months.

  • Unfortunately, if the loan is just under the borrower’s name
  • But the monthly payments are being paid by someone else
  • The debts on the loan is considered the main borrower
  • Cannot be excluded from the debt to income ratio calculations
  • To be able to exclude the monthly payments from the borrower’s debt to income ratios, the borrower needs to be classified as a co-borrower and not just as the borrower

Examples Of Excluding Debts From Co-Signed Loans To Qualify For Mortgage

Many times, a parent may just help a child to get an auto loan but will not be listed as a co-borrower. They are just the borrower and the child many be paying the auto loan payments for over 12 months.

  • With this type of case scenario this is what happens:
    • even though the child has proof of paying timely auto loan payments and the insurance card is in the child’s name
    • they can provide 12 months canceled checks that the child has been making the payments directly to the automobile finance company
    • this debt cannot be excluded from the main borrower’s debt to income ratios
  • On the flip side:
    • if the child were the main borrower
    • the parent was the co-signer
    • and the child can provide 12 months canceled checks and/or 12 months bank statements that the child has been making timely payments online for the past 12 months
    • then the monthly car payment can be excluded from the debt to income calculations of the co-signer ( parent )

Home buyers who need to qualify with a creative direct lender with no overlays on government and conventional loans, contact us at Gustan Cho Associates at 262-716-8151 or text us for faster response. GCA Mortgage Group has a national reputation on being able to originate and fund loans where others cannot. Over 75% of our borrowers are folks who could not qualify at other lenders due to their overlays or got a last minute mortgage denial. We have no overlays on debt to income ratios on all loan programs.

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