Non-Occupied Co-Borrower Can Be Added To Borrower With High DTI
This BLOG On Non-Occupied Co-Borrower Can Be Added To Borrower With High DTI Was UPDATED On November 1st, 2017
A large percentage of mortgage borrowers consult with The Gustan Cho Team at USA Mortgage due to having higher debt to income ratios.
- Most mortgage lenders have lender overlays on debt to income ratios.
- Lender Overlays are mortgage guidelines that are above and beyond federal guidelines.
Two of the most common tradelines that affect Debt To Income Ratios are the following:
- Car Loans
- Student Loans
Car Loans are normally have higher monthly payments than any other credit payments due to the short amortization schedule. Student Loans have higher monthly payments due to large balance amounts. Many student loans are like home loans. Deferred Student Loans are no longer exempt with FHA Loans. VA Loans allows deferred student loans that has been exempted from debt to income ratio qualifications on deferred student loans that has been deferred longer than 12 months.
What Are Lender Overlays On DTI?
Example of mortgage lender guidelines on debt to income ratios:
- To get an approve/eligible per Automated Underwriting System on FHA Loans, borrowers with 620 or higher credit scores can have up to 56.9% debt to income ratios
- However, most banks and mortgage companies will have a cap on debt to income ratios of 45% to 50% DTI
- The lower debt to income ratios required by individual lenders is called lender overlays
- The Gustan Cho Team at USA Mortgage has no lender overlays on government and/or conventional loan programs
- We just go off approve/eligible AUS Findings on all of our government and conventional loan programs
How Mortgage Underwriters Calculate Income And Debt To Income Ratio
Income and liabilities play a major role in qualifying for a mortgage loan.
- One of the most important factors besides credit scores are debt to income ratios.
- Debt to income ratios are calculated by taking total monthly expenses divided by total monthly income.
Types Of Debt To Income Ratios
There are two types of debt to income ratios:
- The first type of debt to income ratio is the front end debt to income ratios
- The front debt to income ratio is also called the housing debt to income ratios
- The second is the back end debt to income ratios which is also known as the total debt to income ratios.
Front End Debt To Income Ratio
- The front end debt to income ratios is the sum of the principal, interest, property taxes, homeowners insurance, and homeowners association fees if any divided by the borrower’s total monthly gross income.
- The back end debt to income ratios is the sum of the borrower’s total monthly expenses which included the housing expenses, automobile loans, student loans, installment loans, revolving debts divided by the borrower’s total monthly gross income.
- For FHA insured mortgage loans, the maximum allowable debt to income ratios for the front end is capped at 46.9% and for the back end is capped at 56.9% in order to get an approved/eligible per DU Findings.
- Mortgage Borrowers who go over the maximum front end and back end debt to income ratio caps as a borrower, will not get an approved eligible by AUS ( Automated Underwriting System )
- One solution to qualify for mortgages with higher debt to income ratios is to get a non-occupied co-borrower to qualify for a mortgage loan.
Debt To Income Ratio For Conventional Loans
Conventional mortgage loans are capped at much lower caps debt to income ratios than FHA Loans and VA Loans. Conventional Loans are capped at 50% debt to income ratios. USDA Loans have much lower debt to income ratio caps at 41% DTI.
Fannie Mae does not allow for non-occupied co-borrower but Freddie Mac does allow it.
FHA allows non-occupied co-borrower to be added to a mortgage loan in the event if the borrower does not qualify for a mortgage loan due to income.
- A non-occupied co-borrower needs to be a family member or relative or a super close friend who the borrower has known for at least 5 years.
- Mortgage Borrowers can have zero income as the borrower (self employed borrowers) and can qualify by adding non-occupant co-borrowers
- If the non-occupied co-borrower has enough income to qualify for mortgage loan, the deal can still be done.
- Social security income, pension income, retirement income, alimony income, child support income, royalty income, all can be used as income in mortgage qualification.
- Non-Occupant Co-Borrowers need to be related to borrower by blood, marriage, law
Who Can Be Non-Occupied Co-Borrowers?
Non-Occupant Co-Borrowers need to be related to borrowers by the following:
The following people can be non-occupant co-borrowers:
- Step Parents
- Step Grandparents
- In Laws: Father, Mother, Grandparents, Brother, Sister
- Brothers and Sisters And Step Brothers and Step Sisters
Risks And Hesitancy With Non-Occupied Co-Borrower
Often times, a non-occupied co-borrower is relunctant in being a non-occupied co-borrower because they feel that the mortgage will deter them from getting a mortgage of their own in the near future.
- The good news is that as long as the non-occupied co-borrower can qualify for another mortgage
- Non-Occupied Co-Borrower need to provide proof that he or she is a non-occupied co-borrower and not liable in making payments
- They need to prove that they are not making the mortgage payments and someone else is
- It will not count against their overall debt to income ratios when qualifying for another mortgage after 12 months
- They need to wait one year
- Co-Borrowers need to provide proof that the mortgage payments have been made timely by the primary borrower via providing cancelled checks and/or bank statements from the primary borrower.
- Again, it will not affect the non-occupied co-borrower after the primary borrower has had the loan for the past 12 months.
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