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:
    • parents
    • brothers
    • sisters
    • aunts
    • uncles
    • grandparents
    • children
    • 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.

Related> Solution to high Debt to Income Ratios

Related> Having two FHA Loans at the same time