New Mortgage Guidelines On Co Borrowers

Updated Mortgage Guidelines On Co Borrowers

Mortgage Guidelines On Co Borrowers has recently been updated for both FHA Loans and Conventional Loans. FHA allows non-occupant co-borrowers to be added to the mortgage loan of a borrower if the main borrower cannot qualify due to income. There are no limit on the number of non-occupant co-borrowers that can be added to the main borrower. New mortgage guidelines on co borrowers require that co borrowers need to be related to the borrower by blood, marriage or law. Some mortgage lenders are really strict and go to the extent of verifying the actual relationship of the non-occupant co-borrower to the main borrower and require documentation, while other mortgage lenders such as myself will just take the person’s word for the type of relationship the non-occupant co-borrower has to the main borrower or borrowers.

FHA mortgage guidelines on co borrowers does allow non occupant co borrowers who are not family members under HUD’s new 4000.1 FHA Handbook where it states if there are two or more mortgage loan borrowers and one or more of the borrowers will not be occupying the subject home as her or his principal owner occupied home, the maximum mortgage loan to value is limited to 75% LTV or loan to value. This is the case if the co borrower or co borrowers are not family members. The exception to this rule is different for family members being non-occupant co-borrowers.

Mortgage Guidelines On Co Borrowers: What Is Family Member?

As mentioned on the earlier paragraph, FHA allows non occupant co borrowers to be added on a borrower’s mortgage loan if the borrower does not qualify with the income the borrower has alone. However, non occupant co borrowers needs to be a family member if the borrower only wants to put 3.5% down payment on a home purchase FHA Loan. HUD, the parent of FHA, defines that family member is defined as someone that is related to the borrower and/or borrowers by blood, marriage, or law. Examples of family member as defined by HUD are the following person:

− spouses of the borrower
− parents-children of the borrower
− siblings of the borrower
− stepchildren of the borrower
− aunts-uncles, and − nieces-nephews of the borrower
– unrelated individuals who can document evidence of a longstanding, substantial family-type relationship not arising out of the loan transaction of the borrower.

Fannie Mae does not allow non occupant co borrowers to be added on a conventional loan. However, Freddie Mac does allow non occupant co borrowers to be added to the mortgage loan borrower on a conventional loan. Freddie Mac does not have such a strict requirement on non occupant co borrowers and does not require that non occupant co borrowers be family members and does not require that co borrowers be related to the borrower by blood, marriage, or law. Freddie Mae only requirement is that the conventional mortgage loan borrower have at least 5% of their own funds for the purchase of the home when there is a non occupant co borrower unless the loan to value is 80% LTV or less but there are no family member relationship requirement on the no occupant co borrower or co borrowers.

Mortgage Guidelines On Co Borrowers: Liability On Co Borrowers

Being a co borrower does come with liabilities and so does being a co borrower on a home purchase mortgage loan. By being a co borrower, the co borrower is taking on the liability that if the main borrower of the mortgage loan does not perform and pay their home loan, the co borrower will be responsible for the payment and the balance of the mortgage loan. If the main borrower of the home loan is late on their monthly mortgage payments, the late payment history will also reflect on the co borrowers payment history and will  definitely negative impact the co borrowers credit and credit scores. However, becoming a co borrower on a mortgage loan does not hinder the co borrower chances of purchasing a new home in the near future. If you are a co borrower on a home loan and need to purchase another home at a later date, as long as you can provide the payment history of the main borrower by canceled checks and/or online bank statements for the past 12 months and prove that you had nothing to do with the mortgage payment and someone else has made them, then that mortgage payment and mortgage loan balance will not be counted against you in your debt to income ratio calculations. 12 months payment history needs to be provided by the main borrower showing 12 months of timely canceled checks and/or 12 months of bank statements that the mortgage payments have been electronically paid online on time for the past 12 months.

Mortgage Guidelines On Co Borrowers: How Are Co Borrowers Qualified

FHA Mortgage Guidelines On Co Borrowers require that the lower of the two middle scores between the borrower and the co borrower is used to qualify for credit scores when there is a mortgage loan applicant with a co borrower added to the mortgage loan. For example, if the main borrower had credit scores of 500 FICO Transunion, 600 FICO Experian, and 700 FICO Equifax, the middle credit score of the borrower is 600 FICO Experian. If the co borrower had 600 FICO Transunion, 700 FICO Experian, and 800 FICO Equifax, the middle score of the co borrower is 700 FICO. Since the borrower’s middle credit score of 600 FICO Experian is the lower between the borrower and co borrower’s middle credit score, that 600 FICO Experian middle credit score will be used to credit qualify this mortgage loan application.

The co borrower’s income is the important factor when it comes to mortgage qualification. The co borrower’s income needs to be documented just like the main borrower. Full time income, whether it is hourly and/or salaried income can be used, part time income can be used if seasoned for at least two years, bonus income can be used if seasoned for two years, overtime income can be used if seasoned for two years, child support income can be used if it is likely to continue for the next three years, alimony income can be used if the likelihood is likely to continue for the next three years, royalty income can be used if the income is likely to continue for the next three years.

If you are a home buyer with higher debt to income ratios and you need a mortgage lender who specializes in helping higher debt to income ratio borrowers, please contact me at 262-716-8151 or email me at gcho@gustancho.com. I am available 7 days a week, evenings, weekends, and holidays.

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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