Excluding Debts From Co-Signed Loans To Qualify For Mortgage

Excluding Debts From Co-Signed Loans To Qualify For Mortgage

Gustan Cho Associates are mortgage brokers licensed in 48 states

This guide covers excluding debts from co-signed loans to qualify for mortgage loans. 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 are included in the calculations of their debt-to-income ratios. John Strange, a senior loan officer at Gustan Cho Associates, explains about excluding debts from co-signed loans so the co-signer can qualify for a mortgage loan as follows:

There are ways of excluding debts from co-signed loans. But they are strict, and a mortgage loan originator planning to exclude debts from co-signed loans must carefully examine the payment history. The loan officer needs to determine how the debts are paid monthly 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 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. You cannot exclude debts from con-signed loans if there has 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 do not count. All monthly payments will need to be documented. In the following paragraphs, we will discuss excluding debts from co-signed loans from co-signers so they can qualify for a mortgage loan.

Monthly Debts That Someone Else Pays Exempt From DTI For a Mortgage

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In many cases, I get calls where a borrower gets a last-minute denial due to their loan originator making a mistake. Loan officers can make the mistake of excluding debts from loans that are just under the 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 are considered the main borrower. Cannot be excluded from the debt-to-income ratio calculations

To exclude the monthly payments from the borrower’s debt-to-income ratios, the borrower needs to be classified as a co-borrower, not just the borrower. However, Gustan Cho Associates offers a program where a borrower’s debts may be excluded if someone else has paid for it for the past 12 months. Canceled checks or bank statements for the past 12 months are required to validate this.

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

Often, a parent may help a child get an auto loan but will not be listed as a co-borrower. They are just the borrower. The child may pay 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 their name, they can provide 12 months of canceled checks.

Regarding the canceled checks, the child has been making the payments directly to the automobile finance company, is up to the lender whether the lender will exempt the debt. Most lenders cannot exclude this debt from the main borrower’s debt-to-income ratios.

However, Gustan Cho Associates allows debts of the borrower being paid by someone else to be excluded from the debt-to-income ratio calculations.

Cases When Excluding Debts From Co-Signed Loans is Exempt From DTI

On the flip side, if the child were the main borrower, the parent was the co-signer. The child can provide 12 months of canceled checks or 12 months of 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 most lenders’ debt-to-income calculations of the co-signer (parent).

Over 80% of our clients at Gustan Cho Associates could not qualify at other lenders. We will exempt debts, whether the payer of the debt is a co-signer or not, that are not paid by the consumer but by others as long as the borrower has proof the person paying the debts can document 12 months monthly payments. The payment has to be by check or bank wire.

Homebuyers who have questions about the content of this guide on excluding debts from co-signed loans or need to qualify with a mortgage lender with no overlays on government and conventional loans, contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at Gustan Cho Associates at alex@gustancho.com. Gustan Cho Associates has a national reputation for being able to originate and fund loans where others cannot. Over 80% of our borrowers 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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