FHA Guidelines On Excluding Debts From Co-Signed Loans

This Article Is About Guidelines On Excluding Debts From Co-Signed Loans

FHA Guidelines On Excluding Debts From Co-Signed Loans 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
  • Gustan Cho Associates will exempt debts the borrower is not responsible for
  • The debts can be debts that the main borrower is a co-signer but need to show they are not responsible for the monthly payments and have not been paying on the debt for the past 12 months
  • Gustan Cho Associates will make exceptions on debts that are solely on the main borrower’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 person responsible for the debt payments will be required to be able to use this exemption

In order to be able to exclude debts of co-signers, mortgage underwriters will need to see proof that the co-signer has been paying the debt and not the main borrower.

How To Exclude Debts Of Co-Signers When Qualifying For A Mortgage

FHA Guidelines On Excluding Debts From Co-Signed Loans

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
  • 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
  • However, it is difficult to say no to a family member or very close friend who asks to co-sign for them
  • FHA Guidelines On Excluding Debts From Co-Signed 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.

HUD Guidelines On Excluding Debts From Co-Signed Loans On Auto 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 Subject Debt

FHA Guidelines On Excluding Debts From Co-Signed Loans On Home Loans

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
  • If the co-signer has co-signed on multiple auto loans and the co-signer is not responsible in making the payments, then all co-signed auto loans 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.

Excluding Debts From Co-Signed Loans On Home Loans

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
  • The good news is under FHA Guidelines on excluding debts from co-signed loans include those who are non-occupant co-borrowers
  • The mortgage payments on co-signers will not count against the debt to income ratios in them qualifying for their own mortgage as long as they can provide 12 months canceled checks and/or 12 months bank statements by the main borrower
  • All payments in the past 12 months need to be made on time
  • 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, the mortgage payments, this mortgage payment can be excluded from the co-signer and not affect them when they will be purchasing a new home.

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