The Federal Housing Administration allows FHA insured mortgage loan borrowers to add non-occupant co-borrower to a FHA mortgage applicant on a borrower that does not qualify due to high debt to income ratios. The non-occupant co-borrower is on the note but not on the title of the property. Non-occupant co-borrower’s income and credit scores are used to qualify for the borrower’s mortgage loan. What happens if a mortgage loan borrower gets a non-occupant co-borrower with bad credit?
Having A Non-Occupant Co-Borrower With Bad Credit
Let’s take a case scenario. Say the mortgage loan applicant does not qualify for a FHA insured mortgage loan because he has child support payments he needs to make of $700 per month which exceeds the maximum back end debt to income ratios of the maximum allowed of 56.9%. The mortgage loan borrower has credit scores north of 740 FICO .
Credit Scores And Debt To Income Ratio Caps
The borrower gets his mother to be his non-occupant co-borrower but the mother’s credit score is 580 FICO. On a case like this, the mother’s credit score of 580 FICO will be used versus the higher credit score of the mortgage loan borrower. Normally, the lower of the two mortgage applicant’s credit scores are used when qualifying for a mortgage loan. On this case, since the credit score is lower than 620 FICO, the maximum back end debt to income ratio cap is reduced to 43% debt to income ratio.
620 FICO Credit Scores Versus Under 620 FICO
In general, if a mortgage loan borrower’s credit score is higher than 620 FICO, the max debt to income ratio is capped at 56.9%. If the mortgage loan borrower’s credit score is lower than 620 FICO, then the debt to income ratio gets reduced to 43% debt to income ratio. If the mortgage loan borrower needs a higher debt to income ratio to qualify for the mortgage loan and the non-occupant co-borrower has a credit score lower than 620 FICO, the mortgage loan originator can possibly help in getting the non-occupant co-borrower’s credit score over 620 FICO before processing and underwriting the residential mortgage application. There are some fast quick fixes in boosting up credit scores such as paying down credit card balances or sometimes adding secured credit cards to boost up the available credit.
By Gustan Cho