Qualifying For FHA Loans With Non Occupied CoBorrowers

This BLOG On Qualifying For FHA Loans With Non Occupied CoBorrowers Was UPDATED On July 18, 2017

There is more to qualifying for FHA Loans with just have a good paying job and great credit scores.

  • Whether it is FHA, VA, USDA, Fannie Mae, Freddie Mac, Jumbo, or any other loan program, lenders will want to know if borrower’s are able to re-pay their mortgage loans.
  • Debt To Income Ratio is calculated by adding the sum of all of minimum monthly debt payments of the borrower and dividing it by the borrower’s monthly income.
  • Every loan program has its own debt to income ratio requirements.
  • On this article, we will talk about FHA Loans and it guidelines on non-occupant co-borrowers.

Reason Why Non Occupied CoBorrowers Are Required

Many home buyers can afford homes with the income they make. However, due to extensive write offs on tax returns or getting paid cash, a percentage of that income can not be used as qualified income. On instances like these, FHA allows non-occupant co-borrowers:

  • A large percentage of those who do not qualify for a mortgage loan is because they have high debt to income ratios.  
  • Fannie Mae has maximum debt to income ratio caps at 45%. 
  • Fannie Mae does not allow non-occupant co-borrowers on Conventional Loans.
  • Freddie Mac does allow non-occupant co-borrowers.
  • With VA Loans, the only way a co-borrower can get added is only the spouse of the veteran borrower.
  • Non-Occupant Co-Borrowers are not allowed on VA Loans.
  • On FHA mortgage loans, debt to income ratios caps is 46.9% front end and 56.9% back end.
  • FHA allows more than one non-occupant co-borrower to be added on the FHA Loan.
  • Manual Underwriting require compensating factors.

What Are Compensating Factors?

Compensating factors are beneficial factors that makes a mortgage loan borrower credit profile look stronger thus avoiding risk factors from the mortgage lender.

Examples of compensating factors are the following:

  • 3 months reserves
  • Payment Shock of 5% or $100 whichever is less
  • Borrower having second job and has been on that second job for at least 12 months but is not used as qualifying income.

What Are Debt To Income Ratios

Debt to income ratios is the amount of total monthly payments you have divided by your total gross monthly income.

  • For example, if a mortgage loan applicant has a car payment of $200 per month, minimum credit card payments of $200 per month and a student loan of $100 per month, total monthly payments is $500 per month. 
  • Taking the $500 per month total monthly payments and dividing it by total gross monthly income yields the debt to income ratio.
  • Say monthly gross income is $1,000, then take monthly debt obligations of $500 and divide it by gross income of $1,000 which yields 50%. 
  • Debt to income ratio is 50%. 
  • Utility payments, cable tv payments, internet payments, insurance payments, and other payments like cell phone payments are not factored in when calculating debt to income calculations.

Non Occupied CoBorrowers

FHA mortgage loans allow non occupied coborrowers.

  • Non Occupied CoBorrowers are often needed if the main mortgage loan borrower has high debt to income ratios. 
  • The most common monthly debts that spikes debt to income ratios are monthly car payments and child support/alimony payments and student loan payments. 
  • A car payment is usually $200 a month or more per month which is equivalent to a $40,000 worth of buying power on a home purchase.
  • The maximum debt to income ratio that a mortgage loan borrower can qualify for a FHA mortgage loan is 56.9%. 
  • FHA and Freddie Mac is the only mortgage loan program that allows a non occupied coborrowers.

Credit Scores Of Co-Borrowers

When it comes whose credit scores the mortgage lender uses, the mortgage lender uses the middle credit scores of the lower of credit scores of borrowers.

  • Mortgage borrowers have non occupied coborrowers and their middle credit scores are 640 FICO and the borrower’s credit scores are 720 FICO, the non occupied coborrowers credit scores of 640 FICO will be use for mortgage underwriting purposes.
  • FHA requires that Non-Occupant Co-Borrowers be related to borrower by law, marriage, or blood.

Mortgage borrowers with higher debt to income ratios who needs to get qualified with a lender with no lender overlays, please contact us at 1-800-900-8569 or email us at gcho@gustancho.com. We are available 7 days a week, evenings, weekends, and holidays.

Related> Conventional Loan With Non Occupant Co Borrower

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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