How Do Lenders View Negative Income With Co Borrowers

FHA Loans With Negative Income With Co Borrowers

FHA allows non-occupant co-borrowers to be added on the mortgage loan of a borrower who has little or no income. Income is the most important factor when it comes to qualifying for a FHA Loan. Income is more important than credit when it comes to qualifying for a FHA Loan. You can have the best credit in the world but without documented income, there is no way a home buyer can qualify for a FHA Loan. FHA allows mortgage loan borrowers with less than perfect credit to qualify for a mortgage loan. You can have a credit score as low as 580 FICO and still qualify for a 3.5% down payment home purchase FHA insured mortgage loan. You 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 for a FHA Loan as long as they have a written payment agreement with the judgment creditor and/or the Internal Revenue Service and has been making at least three payments and can provide three months canceled checks. However, if you have little income, no income, or negative income, you can still qualify for a FHA Loan as long as you can have non-occupant co-borrowers . FHA allows for multiple non-occupant co-borrowers to be added to the main mortgage loan 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, they 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 and 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 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 mortgage loan borrowers, as well as many mortgage loan originators have questions on how mortgage loan underwriters qualify on negative income with co borrowers. One of the biggest reasons on why self employed mortgage loan borrowers get last minute mortgage loan denials is because the mortgage loan originator has qualified negative income with co borrowers wrongly. Many mortgage loan officers think that you can zero out the negative income with co borrowers. However, this is not allowed. You cannot zero out negative income with co borrowers. The negative income needs to be taken into account. For example, lets take this case scenario:

  1. Mortgage Loan 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. Mortgage Loan 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.

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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