Negative Income With Co-Borrowers Mortgage Guidelines

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Negative Income With Co-Borrowers Mortgage Guidelines

This BLOG On Negative Income With Co-Borrowers Mortgage Guidelines Was UPDATED On September 11th, 2018

FHA allows non-occupant co-borrowers to be added on borrowers who has little or no income.

  • Income is the most important factor when it comes to qualifying for FHA Loans
  • Income is more important than credit when it comes to qualifying for mortgage
  • Can have the best credit in the world but without documented income, there is no way a home buyer can qualify for any home loan
  • HUD, the parent of FHA, allows borrowers with less than perfect credit to qualify for FHA Home Loans
  • Can have a credit score as low as 580 and still qualify for a 3.5% down payment home purchase FHA insured mortgage loan
  • Borrowers can also have outstanding collection accounts and charge off accounts and still qualify for a FHA Loan without having to pay off the delinquent balance
  • FHA also allows borrowers with judgments and tax liens to qualify as long as they have a written payment agreement with the judgment creditor and/or the Internal Revenue Service
  • Borrower needs to have been making at least three payments and can provide three months canceled checks
  • However, those with little income, no income, or negative income can still qualify for a FHA Loan as long as they can add non-occupant co-borrowers
  • FHA allows for multiple non-occupant co-borrowers to be added to the main borrower for income qualification

Negative Income With Co Borrowers Case Scenario

How can someone have negative income?

  • Negative income is often common with self employed borrowers
  • Self employed borrowers have the advantage of writing a lot of business expenses off where many times
  • Self employed borrowers can have negative income on paper where their business expenses exceed the income they make
  • This yields in negative income where the self employed borrower has little to no tax liability and many times their losses can be carried forward to future years
  • This is great for the person because they take advantage of the tax loopholes
  • Can expense many things out where they have limited tax liabilities
  • However, it will be very bad when it comes to qualifying for a home loan
  • Many self employed borrowers will need non-occupant co-borrowers to qualify for a FHA Loan
  • This is due to their limited income, no income, or negative income they declare on their tax returns
  • Many self employed borrowers have questions in qualifying with negative income with co borrowers

How Do Lenders Qualify On Negative Income With Co Borrowers

Many borrowers, as well as many mortgage loan originators have questions on how mortgage underwriters qualify on negative income with co borrowers.

  • One of the biggest reasons on why self employed borrowers get last minute mortgage loan denials is because the mortgage loan originator has qualified negative income with co borrowers wrongly
  • Many loan officers think that borrowers can zero out the negative income with co borrowers
  • However, this is not allowed
  • Cannot zero out negative income with co borrowers
  • The negative income needs to be taken into account

For example, lets take this case scenario on Negative Income With Co-Borrowers:

  1. Borrower A is the main borrower and has declared losses of $12,000 on his tax returns which is negative -$1,000 per month income
  2. Borrower B is the non-occupant co-borrower and makes $24,000 per year, which is positive income which is a monthly gross income of $2,000 per month.

The qualifying income on the above borrowers with negative income with co borrowers is derived by subtracting the negative $-1,000 income of Mortgage Loan Borrower A by the positive $2,000 income of Mortgage Loan Borrower B which yield the qualifying income of $1,000 ( $2,000 co borrower income and subtract the negative income by Borrower A ). There are still mortgage loan officers that get confused when it comes to negative income with co borrowers and just zero out the negative income when qualifying a mortgage loan borrowers.

This BLOG On Negative Income With Co-Borrowers Was UPDATED On September 11th, 2018

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