FHA Loans And Non-Occupant Co-Borrower
FHA loans are probably the most popular mortgage loan programs today due to the lax mortgage lending guidelines compared to other mortgage loan programs. FHA loans are not just for home buyers with bad credit or prior bankruptcy, foreclosure, deed in lieu of foreclosure, or short sale. Home buyers with perfect credit may not qualify for a conventional loan due to higher debt to income ratios. Maximum debt to income ratio caps on conventional loan programs are capped at 45%. FHA loans have maximum front end debt to income ratio cap of 46.9% and a back end debt to income ratio up to 56.9%. The front end debt to income ratio is the proposed housing monthly payment which consists of the principal, interest, property taxes, and homeowners insurance divided by the borrowers monthly gross income. The back end debt to income ratio is the sum of the monthly housing payment ( Principal, Interest, Taxes, and Insurance, also referred to PITI ) divided by the borrowers gross monthly income.
For mortgage loan applicants who have debt to income ratios higher than 46.9% front end and 56.9% back end, FHA allows FHA mortgage loan applicants to add non-occupant co-borrowers to qualify for income on their FHA mortgage loan application.
Qualifying To Be Non-Occupant Co-Borrower For FHA Loans?
Not everyone can be a non-occupant co-borrower. A non-occupant co-borrower needs to be related to the main borrower by blood, marriage, or law. For example, a parent, brother, sister, grand parent, in laws, step parents, and step children can all qualify to be non-occupant co-borrowers. A friend cannot be a non-occupant co-borrower unless the main borrower has known the friend for at least five years or more and the relationship can be documented. Not too many mortgage lenders will allow friends to be non-occupant co-borrowers but there are a few select mortgage lenders that may allow it. Cousins and other distant relatives may possibly qualify as non-occupant co-borrowers depending on the mortgage lender. Some mortgage lenders are more strict on who or who cannot be a non-occupant co-borrower.
Non-occupant co-borrowers go on the mortgage loan but not on title to the property unless they elect to go on title.
How Many Non-Occupant Co-Borrowers Can I Add?
If the main mortgage loan borrower has little or no income, the borrower can add a non-occupant co-borrower to qualify for income. There are no restrictions on how many non-occupant co-borrowers you could add on the mortgage loan. There can be one or five non-occupant co-borrowers added to the main borrower’s mortgage loan application. On cases where the main borrower has negative income due to being self employed and writing losses off their tax returns, this borrower will be classified as zero income and the negative income will not be offset by the non-occupant co-borrowers.
Credit Criteria For Non-Occupant Co-Borrowers
Both the main borrower and non-occupant co-borrower credit profiles are looked at. Mortgage lenders will go off the lower credit scores of either the main mortgage loan borrower or non-occupant co-borrower. Mortgage lenders go off the middle credit scores when qualifying a borrower’s credit score. For example, if the main borrower had a Transunion credit score of 400, Equifax credit score of 600, and Experian credit score of 700, the 600 credit score, which is the middle credit score, will be used as the qualifying credit score used. If the non-occupant co-borrower has a 600 Transunion credit score, a 700 Equifax credit score, and 800 Equifax credit score, the 700 credit score will be used to qualify the non-occupant co-borrower. Since the main borrower’s credit score of 600 is lower than the non-occupant credit score of 700, the mortgage lender will go off the 600 FICO credit score, which is the lower of the two borrower’s credit scores.
Prior Bankruptcy, Foreclosure, Deed In Lieu Of Foreclosure, Short Sale
Besides qualifying for income and credit, non-occupant co-borrowers need to meet waiting period after bankruptcy, foreclosure, deed in lieu of foreclosure, and short sale if it applies to them. There is a two year waiting period after a bankruptcy discharge date to qualify for a FHA insured mortgage loan, and there is a three year waiting period after the recorded date reflected on the county’s public records after a foreclosure and/or deed in lieu of foreclosure. For those previous homeowners with a prior short sale, there is a three year waiting period from the date of the short sale reflected on the HUD’s Settlement Statement.
Will Being Non-Occupant Co-Borrower Hurt Chances Of Qualifying For Own Mortgage Loan?
Many folks love the chance to help a family member get a home by becoming a non-occupant co-borrower. However, one of their concerns is that they do not want to hurt themselves by co-signing for a family member if by co-signing they will not qualify for a mortgage loan for themselves at a future date. The good news is that by becoming a non-occupant co-borrower will not affect the non-occupant co-borrower’s ability to qualify for another mortgage loan if the non-occupant co-borrower can provide the new mortgage lender that they are not responsible for the payment of the co-signed mortgage loan. This is proven by providing the main borrower’s proof of payment by providing 12 months of canceled checks from the main mortgage loan borrower. 12 months of canceled checks is required in order to prove that the non-occupant co-borrower is not responsible for the main borrower’s mortgage payment.