What Is A Non-Occupant Co-Borrower?
Days of stated income mortgage loans and no doc mortgage loans are long over. Income is the most important factor in qualifying for a residential mortgage loan. Mortgage lenders want to know that the mortgage loan borrower can afford to pay their new home loan. Only documented income can be used to qualify for a mortgage loan. Cash income does not count. Part time income, bonus income, and overtime income can be used only if the mortgage loan applicant had bonus income, part time income, and/or overtime income for at least two years and the likelihood is likely to continue for the next three years. 18 months of part time income, bonus income, and/or overtime income does not count. Needs to be a minimum of two years.
Adding Non-Occupant Co-Borrower
The Federal Housing Administration allows mortgage loan borrowers to add a non-occupant co-borrowers if they do not qualify with the income. Non-occupant co-borrowers is only allowed with FHA loans and Freddie Mac conventional loans. Fannie Mae does not allow non-occupant co-borrowers to be added to the mortgage loan. Freddie Mac will allow non-occupant co-borrowers only if the home loan borrower puts down 5% down payment of their own money and no gifted funds for the down payment. Non-occupant co-borrowers need to be family members or relatives and be associated with mortgage loan borrowers by blood, marriage, or law. For example, parents, brothers, sisters, aunts, uncles, grandparents, children, step children can all be a non-occupant co-borrower for a mortgage loan applicant. Non-occupant co-borrowers will go on the mortgage loan but not on the title to the property. A non-occupant co-borrower will need to provide all income, liability, and asset information to the mortgage lender.
Who Can Qualify As Non-Occupant Co-Borrower
To be qualify as non-occupant co-borrowers for a mortgage loan borrower, the non-occupant co-borrowers needs to be a family member and/or relative to the mortgage loan borrower by blood, marriage, or law. In order to qualify as non-occupant co-borrowers, they need to have rental verification and/or history of mortgage. For example, if the non-occupant co-borrower is currently living with family and/or friends and is living rent free, that person will not qualify as a non-occupant co-borrower. Rental verification is only valid if the non-occupied co-borrower pays their landlord with a check every month and provides 12 months cancelled checks paid to the landlord. Bank wires from the non-occupant co-borrower to the landlord is allowed as long as the non-occupant co-borrower can provide 12 months bank statements of funds being withdrawn from their bank account to the landlord’s bank accounts. A verification of rent, also known as a VOR, is required as well which is a statement signed by the landlord attesting that the tenant has been paying rent timely in the past 12 months with no late payments. If the non-occupant co-borrower is renting their home or apartment from a registered property management company, a letter from the property management manager is sufficient as proof of verification of rent in lieu of providing cancelled checks and/or bank statements.
Will being a non-occupant co-borrower affect debt to income ratios for non-occupant co-borrower?
Being a non-occupant co-borrower will not affect the non-occupant co-borrower with their debt to income ratios after 12 months. For example, if the non-occupant co-borrower is a renter and wants to qualify for a residential mortgage loan after one year, the non-occupant co-borrower needs to provide 12 months cancelled checks from the main borrower proving that he or she is not responsible for the mortgage payment. The risk that arises from being a non-occupant co-borrower is that if the mortgage loan borrower is late on his or her mortgage payment, it will affect their credit payment history and credit scores on their credit report.
Can You Add More Than One Non-Occupant Co-Borrower?
The Federal Housing Administration allows for more than one non-occupant co-borrowers to be added to the mortgage loan borrower’s mortgage loan to qualify for income. You can have both parents added as non-occupant co-borrowers to qualify for income or you can have a brother and/or sister as well as their spouse as non occupant co-borrowers.
What If I Am Self Employed And Show Negative Income?
If you are self employed and show negative income on your tax returns, the negative income WILL NOT be offset by the postive income or the non-occupant co-borrower or non occupant co-borrowers. On cases such as these, the negative income main home buyer will not be used. The main borrower’s income will be zero and the income that will be used will be only the non-occupant co-borrower.
Which Credit Scores Will Be Used?
If you have a non-occupant co-borrower, the lower of either the main borrower or the non-occupant co-borrower middle credit scores will be used. Every consumer will have three credit scores. Mortgage lenders use the middle credit score. For example, if borrower A has a Transunion credit score of 500, a Experian credit score of 600, and a Equifax credit score of 700, the 600 middle credit score is the credit score that the mortgage lender will go off with Borrower A. If Borrower A is using non-occupant Co-Borrower B and Co-Borrower B has a Transunion Credit Score of 600, a Experian Credit Score of 650, and a Equifax credit score of 700, the credit score that Co-Borrower B will have for qualifying purposes is 650. Since Borrower A has the lower of the two borrowers credit scores, 600, the 600 FICO credit score will be used for mortgage qualification purposes.