NON-Occupant Co-Borrower Guidelines For Mortgage Programs

Gustan Cho Associates

This BLOG On Non-occupant Co-Borrower Guidelines For Mortgage Programs Was UPDATED On May 10th, 2019

There are instances where home buyers can afford the proposed new housing payment on a home purchase but do not qualify do to not having qualified verified income.

  • For example, mortgage applicants may have part time income and/or other income that may not be considered qualified income when qualifying for home loans
  • Or they may have large outstanding student loan balances that will be forgiven or in long term deferment but lenders want to count that when calculating debt to income ratios
  • Conventional and FHA Loans allows non-occupant co-borrowers to be added to the main borrower
  • However, there are specific non-occupant co-borrower guidelines

Agency Mortgage Guidelines On Non-Occupant Co-Borrowers

Every mortgage loan program has its own non-occupant co-borrower guidelines.

  • The only two loan programs that allow Non-occupant co-borrowers are FHA Home Loans and Conventional Loans
  • Conventional Loans are also called conforming loans
  • This is because they need to conform to Fannie Mae and/or Freddie Mac Guidelines
  • Conforming Loans are not insured nor guaranteed by the government
  • The roles of Fannie Mae and Freddie Mac is to purchase conforming loans originated and funded by private lenders
  • In order for Fannie and/or Freddie to purchase conventional loans by private lenders, borrowers need to meet conforming mortgage guidelines
  • This included non-occupant co-borrower guidelines
  • The Federal Housing Finance Agency (FHFA) is the federal regulatory agency that regulates Fannie Mae and Freddie Mac
  • The U.S. Department of Housing and Urban Development (HUD) is the parent of Federal Housing Administration (FHA)
  • HUD is the federal agency who is in charge of FHA and sets FHA Lending Guidelines set forth by HUD 4000.1 FHA Handbook
  • This includes non-occupant co-borrower guidelines for FHA Loans
  • The United States Department of Veterans Affairs (VA) is the federal agency that sets VA Guidelines on non-occupant co-borrower guidelines on VA Mortgages
  • VA does not allow non-occupant co-borrowers
  • Only married spouses to veterans are eligible as occupant borrowers

HUD Non-Occupant Co-Borrower Guidelines On FHA Loans

FHA Home Loans are the most popular mortgage loan program in the United States.

  • HUD, the parent of FHA, promotes home ownership to hard working Americans by insuring and guaranteeing private lenders who follow FHA Guidelines on owner occupant home loans
  • FHA does not originate, process, underwrite, fund, nor service loans
  • FHA’s role is to act as a government mortgage insurance agency where it insures private lenders who fund home loans and follow every aspect of FHA Mortgage Guidelines
  • Due to this government guarantee, private lenders are able to offer low down payment, low-interest owner occupant home mortgages to home buyers with higher debt to income ratios and less than perfect credit

Having the ability to add multiple non-occupant co-borrowers is one of the benefits of FHA Loans. FHA also has the most generous debt to income ratios out of any loan program. To get an approve/eligible per Automated Underwriting System, the max front end cap is 46.9% and max back end is capped at 56.9%.

Relation Non-Occupant Co-Borrowers Needs To Be To Main Borrowers With FHA Loans

Both HUD and Fannie/Freddie has distinct different non-occupant co-borrower guidelines.

HUD Non-Occupant Co-Borrower Guidelines require that non-occupant co-borrowers be related to main borrowers by the following:

  • Blood
  • Marriage
  • Law

Being related by blood means mom, dads, brothers, sisters, children, grandchildren, grandparents, or anyone relative related by blood.

Spouses are related by marriage so they will qualify. Being related by law means in-laws.

Some lenders are more strict on enforcing the relation to borrowers than other lenders. At Gustan Cho Associates Mortgage Group, we just ask the relation the non-occupant co-borrower is to the borrower and just take the word of the borrower. Other lenders may be more strict and ask for documentation.

If non-occupant co-borrowers are not related to main borrowers, then HUD requires 25% down payment on home purchase versus 3.5% down payment.

Non-Occupant Co-Borrowers And Down Payment Requirements On Multi-Family Home Financing

To recap, FHA allows non-occupant co-borrowers.

  • To qualify for a 3.5% down payment FHA Loan on single-family homes, the non-occupant co-borrowers need to be related to the main borrower by blood, marriage, or law
  • Otherwise, FHA requires 25% down payment
  • However, on 2 to 4 unit multi-family homes, FHA requires 25% down payment if Non-occupant co-borrowers are added to purchase 2 to 4 unit homes
  • Fannie Mae requires 15% down payment on two to four unit homes if Non-occupant co-borrowers are added which is the same if one person purchases a two to four unit home
  • Freddie Mac HomePossible requires 5% down payment on two to four unit multi-family homes if co-borrowers are added

However, 3% out of the 5% of the down payment needs to come from the main borrower.

Non-Occupant Co-Borrower Relationship To Borrowers On Conforming Loans

Fannie Mae and Freddie Mac do allow non-occupant co-borrowers to be added to main borrowers.

  • However, both Fannie Mae and Freddie Mac does not require that non-occupant co-borrowers be related to the main borrower by blood, law, marriage
  • With Fannie Mae, the main borrower needs income. With Freddie Mac, the main borrower does not need income and all income used in DTI can be used of co-borrowers

As mentioned earlier, the Department of Veterans Affairs does not allow non-occupant co-borrowers. Only married spouses of veterans can be added on VA Home Loans as occupant co-borrowers.

Home buyers who need to start the pre-approval process with a direct lender with no overlays on government and conventional loans can contact us at Gustan Cho Associates Mortgage Group at 262-716-8151 or text us for faster response. Or email us at We are available 7 days a week, evenings, weekends, and holidays.

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