NON-Occupant Co-Borrowers Mortgage Guidelines

In this blog, we will discuss and cover non-occupant co-borrower mortgage guidelines. Many times, when our clients attempt to qualify for a mortgage, the debt to income ratio can be a hurdle. To get over this hurdle you either need to pay off debt or make more money. But there are a few other solutions. Many clients find themselves adding a non-occupying co-borrower to their mortgage loan.

NON-Occupant Co-Borrowers Mortgage Guidelines On Cosigners

non-occupying co-borrower with a conventional loan

In theory, it is like having a cosigner for an auto loan. But they are not required to occupy the property. In this blog, we will go over the rules and regulations for non-occupying co-borrower hours with both FHA and conventional financing. The most common non-occupying co-borrower we see are parents of one of the Borrowers on the mortgage application. Let’s face it, your parents have done a lot for you over the years and they may be able to help you qualify for your dream home. In this article, we will cover and discuss NON-Occupant co-borrowers on mortgage loans.

NON-Occupant-Co-Borrowers Mortgage Guidelines On Conventional Loans

A common misconception in the mortgage industry is conventional loans do not allow non-occupant co-borrowers. If you were told you cannot use a non-occupying co-borrower with a conventional loan, you are dealing with a lender overlay. Gustan Cho Associates do not have any additional overlays on conventional mortgages. Meaning we do allow the use of a non-occupant co-borrower on conventional mortgages. Per Fannie Mae, there are rules of who can be a non-occupying co-borrower.

Fannie Mae Non-Occupant Mortgage Guidelines on Conventional Loans

Fannie Mae defines a non-occupying co-borrower as someone who does not and will not occupy the subject property. Will sign the mortgage and all proper documents such as a deed of trust or note. Does have joint liability with the mortgage and the borrowers. Cannot have relations to the transaction. Meaning they cannot be the seller of the property, the builder, or the real estate broker. Non-occupying co-borrower may or may not have an ownership interest as documented on the title to the home. When utilizing a conventional loan with a non-occupying co-borrower, AUS findings will be run for approval (see our AUS BLOG for more details). The AUS will analyze credit, income, and assets for both parties. If you are using a non-occupying co-borrower, you must put down at least 5% (unless using a specialty program). Per Freddie Mac, the funds for down payment can come from either borrower’s or non-occupying co-borrowers account, or both.

HUD NON-Occupant-Co-Borrower Guidelines

FHA mortgages and non-occupying co-borrower where’s have a few strange quirks. We will dive into those in more detail now. FHA DOES allow the use of non-occupying co-borrowers per HUD NON-Occupant Co-Borrowers mortgage guidelines.

NON-Occupant Co-Borrowers Mortgage Guidelines: Adding Multiple Non-Occupant Co-Borrowers

In fact, you can even have 2 non-occupying co-borrowers!  They are added to the application and are not going to live in the subject property. Within the AUS approval, their income and assets will be added to the loan similar to Conventional mortgages. The same is not true for certain manually underwritten FHA loans. For instance, if you do not have a credit score, you can still obtain an FHA loan. Not having a credit score will require a manual underwrite, and in this situation, the income from a non-occupant co-borrower will not be added to your overall debt-to-income qualifications. Per the HUD 4000.1, when there are two non-occupying co-borrowers, you will need a 25% down payment. Unless the non-occupying co-borrowers are family members. HUD’s definition of a family member is.

NON-Occupant Co-Borrowers Mortgage Guidelines:  What Is The Definition of Family Member

Someone related by blood, marriage, or law:

  • Parents
  • Siblings
  • Stepchildren
  • Aunts/Uncles
  • In some cases, close family friends (with proper documentation)

When completing a cash-out refinance mortgage loan on an FHA loan, the income from an anon-occupying co-borrower will NOT be used for qualification purposes. This is a well-known fact for a loan officer who knows their guidelines. But many loan officers are not up to speed like the Gustan Cho Associates.

Real quick, we will dive into VA mortgage guidelines regarding non-occupying co-borrowers. At this time, you cannot use a non-occupying co-borrower for VA mortgages. There are joint-loans available through the VA, but those are only for family members who will be occupying the property. As you can see every loan program is slightly different. Please reach out to the Gustan Cho Associates for more detail. It is important to select a loan officer who is up-to-date on all mortgage guidelines. For direct assistance please call Mike Gracz on 630-659-7644. I will be available to answer any question 7 days a week. You can also email me at [email protected].

Non-Occupant Co-Borrower Lending Guidelines On Home Loans

We have all heard of the situation where a family member helps cosign for a vehicle. This may be due to having a higher credit score. Or getting a better overall rate. Or simply because the borrower cannot qualify by themselves. What many people do not know is; you can also use a “cosigner” to buy a home. This is call a “non-occupant co-borrower”. Now it is important to understand each loan program’s qualifications for the use of non-occupying co-borrowers. We will detail more information throughout this blog. Keep in mind, many lenders have overlays where you are not allowed to use a non-occupying co-borrower. This is not the case with Gustan Cho Associates.

Non-Occupant Co-Borrower Lending Guidelines On VA Loans

VA loans are an amazing loan program offered to those who serves our country. We are experts in VA lending and support our Veterans with top-notch customer service. VA loans are VERY STRICT on non-occupying co-borrowers. In basic terms, YOU CANNOT USE a non-occupying co-borrower. The VA does offer a “joint loan”, but this is seldomly used. This is when you use a co-borrower who is neither your spouse nor a military member. The VA will only guarantee the mortgage for the veteran and not the co-borrower. Since the VA typically back 25% of the mortgage, to use a “joint loan”, you need a 12.5% down payment. Gustan Cho Associates are experts in all aspects of VA mortgages. Please call Mike Gracz directly on 630-659-7644 for more information on “joint VA loans”. Or text us for faster response. Or email Michael Gracz at [email protected]

Non-Occupant Co-Borrower Lending Guidelines On FHA Loans

FHA mortgages and non-occupying co-borrower where's have a few strange quirks

Moving on to some better news, FHA does allow you to use non-occupying co-borrowers per HUD guidelines. These guidelines are very black and white but unfortunately many loan officers do not understand them. There are down payment requirements when using two or more non-occupying co-borrowers. If they are not family members, you are required to put down 25%. If they are family members you are still allowed for the maximum 96.5% loan-to-value financing. Please note this does not hold true if you are buying a home from a family member or buying a two to four-unit property. If you are trying to obtain a loan and you do not have any reporting credit scores, and then needed to use a non-occupant co-borrower, the income of the non-occupant co-borrower will not be counted to your debt to income ratio.

Non-Occupant Co-Borrower Lending Guidelines On Conventional Loans

Fannie Mae does allow non-occupant co-borrowers. Fannie Mae describes non-occupant borrowers as credit applicants on a principal residence transaction who. Will not live in the subject property. Can have ownership interest in the subject property on title but is not required to be on title. Will sign the mortgage closing documents. Will have joint liability on the mortgage with the borrower(s). Someone who is not involved in the transaction such as the property seller, builder, or even the real estate agent. As stated above the use of non-occupying co-borrower hours is allowed in common with conventional mortgages. In fact, Fannie Mae seems to advertise the use of non-occupant co-borrower hours for programs such as HomeReady. See below from https://www.fanniemae.com/content/fact_sheet/non-occupant-borrower.pdf.

This diagram will show you how a non-occupant co borrower can add income to qualify for a conventional mortgage

Fannie Mae-non-occupant borrower Income Flexibility

Non-Occupant Co-Borrower Lending Guidelines On USDA Loans

USDA guidelines on non-occupant co-borrower are by far the easiest. They simply CANNOT BE USED.  there are no situations where you may use a non-occupant co-borrower for a USDA mortgage. With home values and interest rates on the rise, we feel the use of non-occupant co-borrowers will rise in the calendar year of 2022. As you already know, we do not have any lender overlays to deal with and are able to use non-occupant co-borrower on any allowable loan program. We are always up-to-date on our mortgage guidelines and news. We are available 7 days a week to help with your unique situation.

Non-Occupant Co-Borrower Mortgage Guidelines On Home Loans

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 loans. 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 HUD 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 HUD Non-Occupant Co-Borrower Mortgage Guidelines, to qualify as non-occupant co-borrowers for borrowers, the non-occupant co-borrowers need 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 be 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, here is a case scenario:

  • 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. The same is true for Cash Out Refinance transactions. These last few sentences may sound confusing to you, please reach out to the experts at the Gustan Cho Associates!  You can reach Mike Gracz via phone or text on 630-659-7644 or text for faster response Or via email at [email protected] The 4000.1 handbook spells out requirements for a non-occupying co-borrower, in short, all qualifications are the same as the occupying borrower (Example; credit score, acceptable assets, how income is calculated). One thing to keep in mind when asking a friend or family to be a non-occupying co-borrower is; they can still qualify for an FHA mortgage of their own, meaning they can buy a home for themselves with an FHA loan or already have an FHA loan.

Related> Solution to high Debt to Income Ratios

Related> Having two FHA Loans at the same time

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