This Article Is About Non-Occupied Co-Borrower Can Be Added To Borrower With High DTI

A large percentage of mortgage borrowers consult with Gustan Cho Associates Mortgage Group due to having higher debt-to-income ratios. Most mortgage lenders have lender overlays on debt to income ratios. Lender Overlays are mortgage guid+++elines that are above and beyond federal guidelines. Many lenders will have lender overlays on debt to income ratio. This holds true even though the borrower gets an approve/eligible per automated underwriting system with higher debt to income ratio.

Using non-occupant co-borrowers for those with high debt to income ratios.

Two Tradelines That Affect Debt To Income Ratio

Two of the most common tradelines that affect Debt To Income Ratios are the following:

1. Car Loans
2. Student Loans

Car Loans 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 from FHA Loans.

VA Loans allows deferred student loans that have been exempted from debt to income ratio qualifications on deferred student loans that have been deferred longer than 12 months.

Overlays By Lenders On Debt To Income Ratio

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 lenders 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 overlays
• Gustan Cho Associates has no overlays on government and/or conventional loans

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 is 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 ratio 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 loans, the maximum allowable debt to income ratios for the front end is capped at 46.9%:

• the back end is capped at 56.9% in order to get an approved/eligible per DU Findings
• 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 loans are capped at much lower caps debt to income ratios than FHA and VA Loans. Conventional Loans are capped at 50% debt to income ratios if the borrower can get an approve/eligible per automated underwriting system. Most private mortgage insurance companies will not take on a borrower with higher than 45% DTI if they do not have at least a 680 credit score. USDA Loans have much lower debt to income ratio caps at 31% front end DTI and a 41% back-end DTI. VA loans do not have a maximum debt to income ratio as long as the borrower can get an approve/eligible per automated underwriting system (AUS).

Both Fannie Mae and Freddie Mac do allow for a non-occupied co-borrower. Fannie and Freddie do not require non-occupant co-borrowers to be related to the main borrower by law, marriage, blood-like HUD does. HUD requires non-occupant co-borrowers to be related to the main borrower by blood, law, marriage for a 3.5% down payment home purchase FHA loan. If the non-occupant co-borrower is not related to the main borrower by law, blood, marriage, then a 25% down payment is required.

Non-Occupied Co-Borrower

FHA and Conventional Loans allow 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 to qualify for a 3.5% down payment home purchase FHA loan:

• HUD does allow non-family members to be added as non-occupant co-borrowers
• However, if the non-occupant co-borrower is not related to the main borrower by blood, marriage, law, the homebuyer needs to put a 25% down payment versus a 3.5% down payment on a home purchase
• Fannie Mae and Freddie Mac does not have the rule of non-occupant co-borrowers being related by law, marriage, blood on conventional loans

Fannie Mae and Freddie Mac do not require a higher down payment on a home purchase if you add non-occupant co-borrowers that are not related by law, marriage, blood to the homebuyer.

Adding Non-Occupant Co-Borrowers To The Homebuyer

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 a 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 the borrower by blood, marriage, law with FHA Loans

Conventional loans do not require non-occupant co-borrowers to be related to the main borrower.

Who Can Be Non-Occupied Co-Borrower?

Non-Occupant Co-Borrowers need to be related to borrowers on FHA Loans by the following:

• Law
• Blood
• Marriage

Typical Non-Occupied Co-Borrower That Can Be Added

The following people can be non-occupant co-borrowers:

• Parents
• Step-Parents
• Grandparents
• 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 reluctant in being a non-occupied co-borrower. This is 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 for 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 canceled 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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