Non-Occupant Co-Borrower: Solves High Debt To Income Ratios
The Federal Housing Administration allows for non occupant co borrower to be added on a FHA loan where the borrower does not qualify due to higher debt to income ratios. The non-occupant co-borrower can be added to the FHA loan so the main borrower can qualify for the mortgage loan.
Self Employed Mortgage Loan Borrowers
Non-occupant co-borrower comes in super handy when the main borrower is a self employed borrower where a substantial portion of his or her income is not declared or the main borrower writes off many expenses where his or her adjusted gross income does not qualify for the mortgage income requirement. The main borrower can have very little or no income as long as the non- occupant co- borrower’s credit and income will qualify for the new mortgage loan. Non-occupant co-borrowers are only on the mortgage loan to help the main borrower to qualify for income and are not on the title to the home purchase.
Non-Occupant Co-Borrower Requirements
To qualify as a non-occupant co-borrower, the person needs to be related to the main borrower either by blood or by law. By law means that adoptive children can be non-occupant co-borrowers or can have their adoptive parents as non-occupant co-borrowers. Non-occupant c0-borrowers can be a father, mother, grandmother, grandfather, brother, sister, aunt, uncle, son, daughter, in laws, and other relatives with close ties to the main borrower.
Attached Is HUD’s Mortgage Lending Guidelines For Non-Occupant Co-Borrowers:
Non-Occupant co-borrower. When there are two or more borrowers, but one or more will not occupy the property as a principal residence, the maximum mortgage is limited to a 75 percent LTV. However, maximum financing, as described in paragraph 1-7, is available for borrowers related by blood, marriage or law (spouses, parent-child, siblings, stepchildren, aunts-uncles/nieces-nephews, etc.), or for unrelated individuals that can document evidence of a family-type, longstanding, and substantial relationship not arising out of the loan transaction. All borrowers, regardless of occupancy status, must sign the security instrument and mortgage note. If a parent is selling to a child, the parent cannot be the co-borrower with the child on the new mortgage unless the loan-to-value is 75 percent or less.
Mortgage Loan Structure
A residential mortgage loan has two components: The first is the promissory note, or mortgage, that creates the terms of the mortgage loan, also called the note, which consists of a promise to pay contractural agreement between the mortgage loan borrower and the mortgage lender. A deed of trust or trust deed is the collateral that links the residential mortgage loan to the subject property where it creates a lien on the home title which is released by the mortgage lender when the mortgage loan is paid in full or refinanced out to another mortgage lender and is normally recorded in the recorder of deeds office in which the subject property is located at. Non occupant co borrower will sign all mortgage loan documents including the mortgage loan promissory note but will not sign the deed of trust or trust deed.
Non-Occupant Co-Borrower: Risks And Rewards
A non-occupant co-borrower’s function is to help a family member qualify for a mortgage loan and are not allowed to have any financial benefit by being a non-occupant co-borrower other than helping a family member out.
Non-occupant co-borrowers are responsible for the mortgage loan if the main borrower defaults. If the main borrower is late on his or her monthly mortgage payments, the non-occupied co-borrower’s credt report will reflect a late payment as well. The non-occupant co-borrower assumes a great deal of risk without any benefits of ownership, however, the reward is that without the non-occupant co-borrower, homeownership will not be possible for the main borrower/home buyer. This is something a loved one can do and it is priceless.
Future Liabilities For Co-Borrowers
The mortgage balance and payment will not count against a non-occupant co-borrower from qualifying for another mortgage after one year if the non-occupant co-borrower can provide 12 months of cancelled checks from the main borrower to show that he or she was not responsible for the mortgage payment and are just acting as a co-borrower. It will not affect the debt to income ratios.