Non-Occupant Co-Borrower Mortgage Guidelines On Home Loans
This BLOG On Non-Occupant Co-Borrower Mortgage Guidelines On Home Loans Was UPDATED On May 2nd, 2019
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
- Lenders want to know borrowers can afford to pay their new home loan
- Ability To Repay is now a rule implemented by the CFPB
- 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 loan applicant had a two-year history
- In order for bonus income, part-time income, and/or overtime income to be used, the borrower needs history 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
Non-Occupant Co-Borrower Mortgage Guidelines On Adding Non-Occupant Co-Borrowers
The Federal Housing Administration allows borrowers to add a non-occupant co-borrowers if they do not qualify with the income. Fannie Mae and Freddie Mac also allow non-occupant co-borrowers to be added on conventional loans:
- Non-occupant co-borrowers are only allowed with FHA
- Fannie Mae and Freddie Mac conventional loans also allow non-occupant co-borrowers
- Fannie Mae and Freddie Mac will allow non-occupant co-borrowers only if the borrower puts down 5% down payment of their own money
- Non-occupant co-borrowers need to be family members or relatives and be associated with mortgage loan borrowers by blood, marriage, or law on FHA BUT NOT Conventional Loans
- For example, the following qualify as non-occupant co-borrowers per FHA Non-Occupant Co-Borrower Mortgage Guidelines:
- stepchildren can all be a non-occupant co-borrower for main borrowers
- 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 a lender
Per FHA Non-Occupant Co-Borrower Mortgage Guidelines, to qualify as non-occupant co-borrowers for borrowers, the non-occupant co-borrowers needs to be a family member and/or relative to the mortgage loan borrower by blood, marriage, or law. If non-occupant co-borrower is not related to the main borrower by blood, marriage, law, then 25% down payment is required. With conventional loans, non-occupant co-borrowers do not have to be related to the main borrowers.
- In order to qualify as non-occupant co-borrowers, they need income and qualifying credit
Non-Occupant Co-Borrower Mortgage Guidelines And How DTI Is Affected
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 mortgage after one year, the non-occupant co-borrower needs to provide 12 months canceled 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 if the main borrower is late on his or her mortgage payment
- It will affect their credit payment history and credit scores on their credit report
More Than One Non-Occupant Co-Borrower Mortgage Guidelines
The Federal Housing Administration allows for more than one non-occupant co-borrowers to be added to main borrower’s mortgage loan to qualify for income.
- Can have both parents added as non-occupant co-borrowers to qualify for income
- Or 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?
Self-employed borrowers with negative income on tax returns, the negative income WILL NOT be offset by the positive income or the non-occupant co-borrower or non-occupant co-borrowers.
- In cases such as these, the negative income main home buyer will not be used
- The main borrower’s income will be zero
- The income that will be used will be only the non-occupant co-borrower
Which Credit Scores Will Be Used?
Home Buyers with 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
- borrower A has a Transunion credit score of 500
- Experian credit score of 600
- Equifax credit score of 700
- The 600 middle credit score is the credit score lender will go off with Borrower A
- If Borrower A is using non-occupant Co-Borrower B
- Co-Borrower B has a Transunion Credit Score of 600
- Experian Credit Score of 650
- 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 credit score will be used for mortgage qualification purposes
On conventional loans, non-occupant co-borrowers do not have to be related to the main borrower by law, marriage, blood.