What Is Required On A Non Occupying Co Borrower?

What Is Required On A Non Occupying Co Borrower

There are many times where a home buyer may need a non occupying co borrower to be added on their mortgage loan due to not having enough qualified income to qualify on their own. Both FHA and Conventional Loan Programs allow for non occupant co borrowers to be added to the mortgage loan if the borrower cannot qualify for themselves. One of the most common questions I get asked is what is required on a non occupying co borrower to be added to the main borrower’s mortgage loan. The non occupying co borrower needs to have qualified income and meet all of the minimum mortgage lending guidelines with regards to qualifying for a mortgage. Mandatory waiting periods after bankruptcy, foreclosure, deed in lieu of foreclosure, and short sale applies to the non occupant co borrower. A mortgage borrower can have as many non occupying co borrowers added to their mortgage loan. Non occupant co borrowers normally have to be related to the main borrower by blood, marriage, or law. Parents, grandparents, parents in law, brothers, sisters, brothers in law, sisters in law, step-brother, step-sister, step-parents, grandparents in law all can be non occupant co borrowers. The enforcement of non occupant co borrowers depends on the individual mortgage lender. Some mortgage lenders may require documents showing proof that the non occupying co borrower is related to the main borrower by law, marriage, or blood, however, mortgage lenders like myself normally take the borrower’s word for it and do not require any documentation to show proof.

What Is Required On A Non Occupying Co Borrower: Credit Scores

The Non Occupant Co Borrower needs to meet the minimum credit score requirement. We will discuss FHA Loans on this blog because FHA Loans are the most popular mortgage loan programs today in the United States and have much more relaxed underwriting guidelines than Conventional Loans and other mortgage loan programs. To qualify for a 3.5% down payment FHA insured home purchase mortgage loan, the mortgage loan borrower needs a 580 credit score. However, if the FHA borrower needs a non occupying co borrower to be added on their mortgage loan, then the non occupant co borrower needs a minimum of a 580 credit score.

How Are Credit Scores Used On Borrowers And Non Occupant Co Borrowers?

Mortgage lenders use the middle of the the three credit scores of the borrower and/or non occupant co borrower. If there are non occupant co borrowers added on the mortgage loan, then the lower of the two middle scores of the two or more mortgage borrowers will be used as the qualifying credit score. Lets take an example where a borrower and co borrower has the following credit scores:

Person                 Experian                     Equifax                 TransUnion        Middle Credit Score

Borrower            600                               700                         800                         700

Co Borrower       500                              600                         700                         600

Mortgage lenders will use the middle of the two borrowers credit scores when on the above case scenario the co borrower has the lower credit scores. The middle credit scores of 600 FICO Credit Score will be used as the credit score for this mortgage loan application.

What Is Required On A Non Occupying Co Borrower: Income

The non occupying co borrower needs qualified income to be able to be an effective non occupant co borrower. A non occupying co borrower who has higher debt to income ratios may not be a good fit as a non occupant co borrower. Many borrowers think that just because the non occupying co borrower has great credit that will be sufficient to be added as a non occupying co borrower on the mortgage loan but that is not the case. A lower credit score non occupying co borrower with qualified sufficient qualified income is more of a benefit than a non occupant co borrower who has super high credit scores but has high debt to income ratios or non qualifying income. Income that can be used and that is considered qualified income are social security income, pension income, and job income as long as the income stream is likely to continue for the next three years. Part time income, bonus income, and overtime income can be used only if the borrower has had a two year history of it and the income is likely to continue for the next three years.

What Is Required On A Non Occupying Co Borrower: Waiting Period After Bankruptcy And Foreclosure

Whatever the mortgage lending requirements are for the main borrower, it also applies for the non occupying co borrower. This includes the mandatory waiting period after a bankruptcy, foreclosure, deed in lieu of foreclosure, and short sale. There is a two year mandatory waiting period to qualify for a FHA Loan after a Chapter 7 Bankruptcy discharged date and a four year waiting period to qualify for a Conventional Loan after a Chapter 7 Bankruptcy discharge date. There is no waiting period to qualify for a FHA Loan after a Chapter 13 Bankruptcy discharged date but there is a two year mandatory waiting period to qualify for a Conventional Loan after a Chapter 13 Bankruptcy discharged date. There is a seven year waiting period to qualify for a Conventional Loan after a foreclosure and a four year mandatory waiting period to qualify for a Conventional Loan after a short sale or deed in lieu of foreclosure. There is a three year mandatory waiting period to qualify for a FHA Loan after a foreclosure, deed in lieu of foreclosure, and short sale. All mortgage lending guidelines and requirements that apply to the main mortgage borrower will apply for all non occupant co borrowers.

On another note, you can have non occupant co borrowers on Conventional Loans , however, only with Freddie Mac and NOT Fannie Mae. Freddie Mac allows non-occupant co-borrowers to be added to the main mortgage borrower, however, Fannie Mae does not allow it.

The non-occupant co-borrower does not need to go on the title to the property. They can just go on the mortgage note.

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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