Exempt Debts of Co-Signed Loans For Co-Signer

In this article, we will discuss and cover exempt debts of co-signed loans for the co-signer when they need to qualify for a new loan. Exempt debts of co-signed loans for co-signer has stipulations. There are instances where debts under the main borrower’s name can be excluded from debt to income ratio calculations when qualifying for a mortgage.

How To Qualify For a Mortgage With Exempt Debts of Co-signed Loans

Gustan Cho Associates will exempt debts of co-signed loans the co-signer is not responsible for. Exempt debt of co-signed loans can be debts of the main borrower. The co-signer need to show the co-signer is not responsible for the monthly payments. The co-signer need to show the co-signer has not been paying on the debt for the past 12 months.

How Mortgage Underwriters View Exempt Debts of Co-Signed Loans

Gustan Cho Associates will make exceptions on debts that are solely on the co-signer’s  name but someone else has been paying for the past 12 months. 12 months of canceled checks and/or 12 months of bank statements of the main borrowers who has been responsible for the debt payments will be required to be able to use this exemption. In order to show exempt debts of co-singed loans for co-signers, mortgage underwriters will need to see proof that the co-signer was not responsible for payment. Proof the main borrower has been paying the debt and not the co-signer.

How To Exempt Debts of Co-Signed Loans For Co-Signer Homebuyer

It is possible to exclude debts of co-signers from debt to income ratio calculations. Co-Signers are people who guarantee a loan for a borrower. Co-signers are not responsible for the debt itself. Co-signers are responsible for the debt if the main borrower defaults on the loan. Common debts that are often co-signed for are auto loans and mortgage loans.

Risks of Becoming a Co-Signer on a Mortgage

There are risks involved for the co-signer whenever they co-sign a loan. Credit reporting agencies will report the payment history of the main borrower and the co-signer. If the main borrower is timely on all of their monthly debt payments, then there are no issues with the co-signer. However, if the main borrower is ever late on their monthly debt payments, then the late payment history will be reported on the co-signer’s credit report as well. Co-signing is normally not recommended.

How Can You Say No If Asked To Become a Co-Borrower

It is difficult to say no to a family member or very close friend who asks to co-sign for them.  Excluding debts from co-signed loans on FHA loans require the main borrower has paid the debts through their bank account in order for the co-signer to be exempt from the debt payments in DTI Calculations. The main borrower needs to provide 12 months of timely canceled checks and/or bank statements if co-signer needs to exclude that debt from DTI Calculations on FHA loans.

Excluding Auto Loan Debts From Co-signed Loans

Auto Loans are one of the most common loans that require co-signers. An average new automobile costs over $25,000. The average new auto monthly payment is $450 per month. Auto payments greatly affect debt-to-income ratios due to the short amortization schedules on loan terms. Most auto loans are amortized over 5 years. A $450 dollar per month monthly payment is equivalent to a $90,000 mortgage loan balance. Home Buyers with multiple auto loans can have very severe negative impacts on how much they can borrow on an FHA Loan.

Importance of Others Paying For Co-Signed Debt

Co-Signers on auto loans can have excluded the monthly auto loan payments only if they are signed up as a co-signer and not the main borrower and the main borrower can provide 12 months of canceled checks. If the main borrower has paid their auto loans online, then 12 months of bank statements need to be provided. There cannot be any late payments in the past 12 months. If the auto loan is paid by someone else and that other person is not on the auto loan note, then the auto loan debt cannot be excluded.

How Exempt Debt of Co-Signed Loans Not Be Included In DTI of Co-Signer

If the co-signer has exempt debts of co-signed loans, the debts the co- borrower is not paying and can be exempt debts. All co-signed loans  are exempt if the main borrower is making all payments and the co-signer has not made any payments. The co-signer of the main borrower can apply for a mortgage of their own.

As long as the co-signer is not responsible in making the payments, then all co-signed debts can be excluded by the co-signers debt-to-income ratios. It can only be excluded as long as the main borrowers can provide 12 months canceled checks and/or 12 months of bank statements.

How Can Co-Signer of Mortgage Exempt Debts of Co-Signed Loans To Buy House

FHA and Freddie Mac allow non-occupant co-borrowers to be added on a borrower’s mortgage loan if they need additional income to qualify for their home loans. Many would be non-occupant co-borrowers who do not own homes but someday would like to purchase a home have reservations in becoming a non-occupant co-borrowers. This because they feel that may destroy the chances of them qualifying for a mortgage someday.

How To Prove Exempt Debts of Co-Signed Loans When It Is Time Co-Signer Buys House

The good news is non-occupant co-borrowers are not responsible for exempt debts of co-signed loans. The mortgage payments on co-signers will not count against the debt-to-income ratios when the co-signer qualify for their own mortgage. This holds true as long as they can provide 12 months canceled checks and/or 12 months bank statements by the main borrower.

How Exempt Debts of Co-Signed Loans Becomes A Debt For The Co-Signer

In order for exempt debts of co-signed loans become valid and truly exempt from the co-signer is only if the main borrower pays all co-signed loans on time for the past 12 months. All payments in the past 12 months need to be made on time by the main borrower in order for debts be exempt debts of co-signed loans. All monthly payments by the main borrowers need to have been made on time and no less than 12 months payment history by the main borrower needs to have been seasoned.

So the bottom line is that as long as the main borrower has made timely mortgage payments for the past 12 months, this mortgage payment can be excluded from the co-signer and not affect them when they purchase a new home of their own.

This article on exempt debts of co-signed loans for co-signer was updated on October 1st, 2022