What Is Required On A Non-Occupying Co-Borrower On Home Loans

This BLOG On What Is Required On A Non-Occupying Co-Borrower On Home Loans Was UPDATED And PUBLISHED On May 5th, 2020

What Is Required On A Non-Occupying Co-Borrower On Home Loans

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
Non-occupant co-borrowers are helpful 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 loan
The non-occupying co-borrower needs to have qualified income
Need to meet all of the minimum 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
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 on FHA Loans for 3.5% down payment home purchase loans
HUD, the parent of FHA, allows for non-family members to become non-occupant co-borrowers
However, if non-family members are non-occupant co-borrowers, then 15% down payment is required
The following are considered family members under FHA Guidelines:
- 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

In this article, we will discuss and cover What Is Required On A Non-Occupying Co-Borrower On Home Loans.

Fannie Mae And Freddie Mac Non-Occupying Co-Borrower Mortgage Guidelines

Under HUD 4000.1 FHA Handbook Guidelines, to be eligible for 3.5% down payment FHA Loans with non-occupant co-borrowers, the co-borrower needs to be related to borrower by blood, marriage, or law.

Otherwise, if borrowers are not related by blood, law, marriage, then 15% down payment is required
Fannie Mae and Freddie Mac does not require non-occupant co-borrowers to be related by law, marriage, blood
Any non-occupant co-borrowers can be added for 3% and/or 5% down payment conventional loans.

Proof Of Relationship To Borrower Being Related By Law, Marriage, Or Blood Under HUD Guidelines

The enforcement of non-occupant co-borrowers depends on the individual mortgage lender.

Some 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
We do not require any documentation to show proof

What Is Required On A Non-Occupying Co-Borrower And Credit Scores

The Non Occupant Co-Borrower needs to meet the minimum credit score requirement.

We will discuss FHA Loans on this blog
This is because FHA Loans are the most popular mortgage loan programs today in the United States
FHA Loans 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 loan, the borrower needs a 580 credit score
However, if the FHA borrower needs a non-occupying co-borrower to be added on their loan, then the non-occupant co-borrower needs a minimum of a 580 credit score and qualify for FHA Loan

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 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

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 On 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
There is 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
There is 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:

Fannie Mae and Freddie Mac allows non-occupant co-borrowers to be added to the main mortgage borrower
Non-occupant co-borrowers do not have to be related to main borrower by law, marriage, blood-like HUD requires 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.

This BLOG On What Is Required On A Non-Occupying Co-Borrower Was UPDATED On May 5th, 2020