In this guide, we will cover what is required on a non-occupying co-borrower on home loans. Often, a home buyer may need a non-occupying co-borrower to be added to their mortgage loan due to insufficient qualified income to qualify independently. FHA and Conventional Loan Programs allow non-occupant co-borrowers to be added to the mortgage loan.
The non-occupying co-borrower needs to have a qualified income. Need to meet all of the minimum lending guidelines about 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
Borrowers 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 non-family members to become non-occupant co-borrowers. However, if non-family members are non-occupant co-borrowers, then a 25% down payment is required.
HUD Guidelines on Non-Occupant Co-Borrowers on FHA Loans
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 for a non-occupying co-borrower to be added to the main borrower’s loan. The following are considered family members under HUD Guidelines:
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- 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
This article will discuss what is required on a non-occupying co-borrower on mortgage loan programs. Non-Occupant Co-Borrower On Home Loans is allowed on FHA and conventional loans. VA loans only allow married spouses as co-borrower. USDA does not allow non-occupant co-borrowers.
What Is Required on a Non-Occupying Co-Borrower on Conventional Loans
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 the borrower by blood, marriage, or law. Fannie Mae and Freddie Mac Guidelines on Non-Occupant co-borrowers differ from HUD guidelines.
Fannie Mae and Freddie Mac Guidelines on non-occupant co-borrowers does not require non-occupant co-borrowers to be related to the main borrowers by law, marriage, or blood on conventional loans.
Otherwise, if borrowers are not related by blood, law, or marriage, then a 15% down payment is required. Fannie Mae and Freddie Mac do not require non-occupant co-borrowers to be related by law, marriage, or blood. Any non-occupant co-borrowers can be added for a 3% or 5% down payment on conventional loans.
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 today’s most popular mortgage loan programs in the United States. Every loan program has its own rules concerning non-occupant co-borrowers.
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.
FHA loans have 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 to their loan, then the non-occupant co-borrower needs a minimum of a 580 credit score and qualifies for an FHA loan.
How Are Credit Scores Used On Borrowers And Non-Occupant Co-Borrowers?
Mortgage lenders use the middle of the three credit scores of the borrower or non-occupant co-borrower. If non-occupant co-borrowers are added to 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. Let us take an example where a borrower and co-borrower have 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 the co-borrower has the lower credit score in the above case scenario. The middle credit score 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 an effective non-occupant co-borrower. A non-occupying co-borrower with higher debt-to-income ratios may not be a good fit as a non-occupant co-borrower. Angie Torres explains about adding non-occupant co-borrowers to a mortgage loan:
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 considered qualified income are social security, pension, and job, as long as the income stream is likely to continue for the next three years. Part-time, bonus, and overtime income can be used only if the borrower has 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 to the non-occupying co-borrower. This includes the mandatory waiting period after bankruptcy, foreclosure, deed-in-lieu of foreclosure, and short sale. A two-year mandatory waiting period is required to qualify for an FHA loan after a Chapter 7 Bankruptcy discharge date. There is a four-year period to qualify for a Conventional loan after a Chapter 7 Bankruptcy discharge date.
HUD Chapter 13 Bankruptcy Guidelines on FHA Loans
There is no waiting period to qualify for an FHA Loan after a Chapter 13 bankruptcy discharge date. But there is a two-year mandatory waiting period to qualify for a Conventional Loan after a Chapter 13 Bankruptcy discharge 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 an FHA loan after a foreclosure, deed-in-lieu of foreclosure, and short sale. All mortgage lending guidelines and requirements for the main mortgage borrower will apply to all non-occupant co-borrowers.
Fannie Mae What Is Required on a Non-Occupant Co-Borrower Guidelines
On another note, you can have non-occupant co-borrowers on Conventional loans. Fannie Mae and Freddie Mac allow non-occupant co-borrowers to be added to the main mortgage borrower. Non-occupant co-borrowers do not have to be related to the main borrower by law, marriage, or blood-like HUD requires it. The non-occupant co-borrower does not need to go on the title to the property. They can go on the mortgage note.
This BLOG On What Is Required on a Non-Occupying Co-Borrower Was UPDATED on May 12th, 2023
Publish On: May 9, 2023 And Last updated On: May 12, 2023