How Non-Occupant Co-Borrower Help With Mortgage Approval

This guide covers how non-occupant co-borrower help main borrowers with mortgage approval. If you don’t qualify for a mortgage on your own, can adding a co-borrower help you qualify? Adding a non-occcupant co-borrower to your home loan application can increase your chances of mortgage approval. A non-occupnat co-borrower can increase your qualifying income if your debt-to-income ratio is too high. A non-occupant co-borrower with excellent credit can strengthen your application. However, all borrowers must meet minimum credit score requirements for a mortgage.

A non-occupant co-borrower is on title to the property and obligated by the mortgage. Co-borrowers don’t have to live in the home. Many loan programs allow non-occupant co-borrowers. Note that non-occupant co-borrowers are not the same as co-signers. Co-signers do not go on the property title. Co-borrowers do.

Which Programs Allow a Non-Occupant Co-Borrower?

The Federal Housing Administration allows FHA and conforming (Freddie Mac and Fannie Mae) mortgage borrowers to add a non-occupant co-borrower when applying for a mortgage.

FHA non-occupant co-borrower must be related to the borrower by law, blood, and/or marriage in order to qualify for a 3.5% down payment home purchase. If your non-occupant co-borrower is not related to you, you’d have to put down 25%. And if you have 25% to put down, you’d probably avoid FHA loans anyway because of the high mortgage insurance cost.

Fannie Mae and Freddie Mac do not require a non-occupant co-borrower to be related to the primary borrowers., but the minimum down payment is 3% for first-time homebuyers. The VA does not allow non-occupant co-borrower.

Non-QM programs often allow a non-occupant co-borrower. One San Diego lender, for example, approves loans to borrowers with credit scores as low as 500 as long as they have a non-occupant co-borrower with at least a 500 credit score.

Too Little Income or Too Much Debt: Can a Non-Occupant Co-Borrower Help You Qualify?

A high debt-to-income (DTI) ratio is one of the biggest hurdles for mortgage applicants. Your DTI is your total monthly account payments, including the new mortgage, your credit cards, auto and student loans, and other debts (but not living expenses like food or utilities), divided by your gross (before tax) income.

The cause of a high DTI is either too little income or too much debt. In many cases, the borrower earns enough to qualify but the loan guidelines don’t count all of the income. For instance, most loan guidelines don’t count the income of a part-time job, self-employment, bonuses or commission unless you’ve been earning it for at least two years. Cash income (not declared on tax returns) is not qualified income.

The good news is FHA, Fannie Mae, and Freddie Mac allow non-occupant co-borrower to enhance the main borrower on loan applications. Not every co-borrower will help your DTI, however. The ideal candidate has good income and not too much debt.

To see if a co-borrower would help your DTI, add up monthly debt payments for both of you and divide that by your total gross monthly income. If the DTI with both of you is lower than your DTI, a non-occupant co-borrower might help you.

Can a Non-Occupant Co-Borrower Have Bad Credit?

If your non-occupant co-borrower has a low credit score, you might not be able to add him or her to your loan application. That’s because every borrower must meet minimum credit scoring requirements to be eligible for a loan. Fannie Mae and Freddie Mac, for example, set their minimum credit score at 620. All borrowers must have credit scores of at least 620 (unless they have no score at all) to qualify.

Even if your non-occupant co-borrower’s credit score exceeds the minimum, a low score can still create problems for you. That’s because conventional (non-government) programs base their interest rate and other requirements on the lowest qualifying score. If your credit score is 720, but your co-borrower’s is 620, Fannie Mae will charge you an extra 2.5% in fees. That’s $5,000 for a $200,000 loan.

Can a Non-Occupant Co-Borrower Help if You Have Bad Credit?

For most popular mortgage programs, like Fannie Mae, Freddie Mac and FHA, you can’t make up for a bad credit score by adding a co-borrower with good credit. If your credit scores don’t meet the minimum for a loan product, even a co-borrower with 800+ credit scores won’t help you.

However, some non-QM or “non-prime” lenders do allow very low credit scores if the co-borrower has good credit.

How Credit Scores Impact Guidelines

If you’re enlisting the help of a co-borrower because your DTI is too high, credit is important. FHA allows a maximum debt-to-income ratio of 46.9% front-end and 56.9% back-end for credit scores 620 or better. But that drops to 43% for credit scored under 620.

Fannie Mae allows a borrower with a 680 score to have a DTI of 43%. That drops to 36% for borrowers with lower scores.

Caution for Non-Occupant Co-Borrower

Being a non-occupant co-borrower is safer than being a co-signer. That’s because a co-borrower is on the title to the home. However, there are some serious downsides to being a co-borrower. If a co-borrower wants to buy a home in the future, his or her DTI may be too high to qualify. That’s because co-borrowing creates “contingent” liability.

Contingent liability is a debt that the co-borrower might have to pay if the primary borrower fails to make the payments. Most lenders require co-borrowers to prove that the main borrower has been making the payments on time for at least 12 months. In that case, they don’t count that debt.

Get Professional Help

Borrowers who need to qualify for a mortgage with a direct lender with no mortgage overlays, please contact us at GCA Forums Mortgage Group at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com. GCA Forums Mortgage has zero overlays on the following:

• FHA Loans
• VA Loans
• USDA Loans
• Conventional Loans

GCA Forums Mortgage Group also are mortgage brokers and correspondent lenders on non-QM loans and bank statement loans for self-employed borrowers. There is no waiting period after foreclosure, deed in lieu of foreclosure, short sale to qualify for a mortgage with non-QM loans. 10% to 20% down payment is required. The amount of down payment depends on the borrower’s credit scores. No tax returns are required with our bank statement mortgage loans for self-employed borrowers. 24 months personal or business bank statements are used and the past 24 months of deposits are averaged to derive monthly income. Gustan Cho Associates Mortgage Group is available 7 days a week, evenings, weekends, and holidays.

Frequently Asked Question on How Non-Occupant Co-Borrower Help With Mortgage Approval

Here’s all you need to know if you are on the verge of mortgage approval with the help of a non-occupant Co-Borrower. The list of questions below should solve every curiosity you possess on the topic:

Non-Occupant Co-Borrower That Do Not Live In The House

What Exactly is The Role Of a Non-Occupant Co-Borrower?

Non-Occupant Co-Borrower Applies Together With The Borrower But Does Not Reside In The Property Being Funded. Such Borrowers are family members, friends, or people who can help You Get a mortgage loan.

Why Do People Use a Non-Occupant Co-Borrower?

A Joint Loan Perhaps Lead To Or Allow For Greater Approval Chances. Yes, But Take Note That Non-Occupant Co-Borrowers Might Influence Mortgage Application Decisions Such As:

Who Is A Suitable Non-Occupant Co-Borrower?

First, They Must Have An Excellent Credit Score and a Consistent Income Stream. Second, they must provide documentation like income history or proof of employment. Third, even though family is preferred, a friend will also suffice.

Do Non-Occupant Co-Borrowers Have to Live on the Property?

In general, no non-occupant co-borrowers live in another property while this property is financed. Their purpose is more financial, where they add more strength to supporting the application.

• What risks do non-occupant co-borrowers face? Financial Obligation: Non-occupant co-borrowers have equally contributed towards the mortgage debt. Thus, they are responsible, too, if the borrower defaults. In this case, the borrower is the primary one, and if the borrower defaults on the repayment, the co-borrower is left with no option but to repay the loan.
• Credit Effect: The co-signer must know that the property financing will be recorded in their credit record, which can negatively impact their rating and chances of securing a loan.

How Does a Non-Occupant Co-Borrower Affect the Mortgage Application Process?

• Faster Processing of Mortgage Application: The stronger the application, the faster the processing. It is reasonable to expect that lenders will determine the mortgage within an accelerated timeframe.
• More Documentation: Lenders might require the co-borrower to provide additional documents, such as income statements and a credit report.
• Do you believe that in competitive markets, non-occupant co-borrowers may provide assistance? Yes, a non-occupant co-borrower is a good source of competitive advantage when applying for a mortgage. This means that the primary borrower can access larger loan values and better terms, which is a good thing for most sellers.
• What’s the distinction between a co-signer and a non-occupant co-borrower?

A non-cosigner is a person who takes a formal role in the mortgage application and qualification criteria. Meanwhile, a co-signer does not participate in any mortgage application process but guarantees the loan.

What is the Procedure if the Primary Borrower Does not Pay the Loan?

Once the primary borrower is in default, the lender can pursue the non-member co-borrower. As a result, the credit scores of both people are likely to be affected badly as well.

Are Non-Occupant Co-Borrowers Acceptable for Every Kind of Loan?

Unfortunately, no. Not all lenders accept non-owner co-borrowers for the majority of mortgage loan types, including conventional and FHA loans. However, certain lenders may have their own set of guidelines.

Non-owner co-borrowers may boost an application for a mortgage by adding a co-borrower into the application mass, increasing the chances for loan affirmation and bettering the loan terms. However, the primary borrower and the co-borrower need to know everything concerning them and the risks involved in such transactions. Thus, one can seek a mortgage specialist to address any concerns that apply to individual cases.