Non-Occupant Co-Borrowers backup

Co-borrowers are people who will basically be co-signing for the borrower. Non-Occupant Co-Borrowers will not be occupying the property but co-signs so main borrower qualifies for the mortgage with regards to income.

• The main borrower can get a non-occupant co-borrowers if the main borrower is the following:
  • self-employed
  • cannot qualify due to little income
  • no income
  • negative income
• If the main borrower is self-employed and has negative income due to them writing too many expenses, no worries
  • The negative income will not offset the positive income
  • If the main borrower is self-employed and has negative income, underwriters will just list the main borrower as a zero income borrower
• The main home buyer can have no job and/or no income and still qualify for a mortgage as long as they have a non-occupant co-borrowers

Can Anyone Be Non-Occupant Co-Borrowers?

The Federal Housing Administration, FHA, states that a non-occupant co-borrower needs to be related to the borrower by blood, law, or marriage in order for the main borrower to qualify for 3.5% down payment FHA Loan:

The following folks qualify:

• A brother
• sister
• mom
• dad
• grandmother
• grandfather
• brother in law
• sister in law
• mother in law
• father in law
• stepmother
• stepfather
• step brother
• step sister
• All of the above can all be non-occupant co-borrowers since they are related by blood, marriage, law
• Things can get tricky when getting into cousins, aunts, uncles, first and second cousins, and other distant relatives
• Some lenders are real sticklers when it comes to non-occupant co-borrowers while other lenders are really loose and extremely understanding

Under HUD Guidelines, if non-occupant co-borrower is not related to the main borrower, then 25% down payment is required on the home purchase.

Fannie Mae and Freddie Mac allow for non-occupant co-borrowers but does not have to related by law, blood, or marriage.

Reason For Adding Co-Signers

The main reason borrowers need co-signers is because they do not qualify for income by themselves:

• Cannot add co-borrowers due to credit scores being low or due to not meeting the mandatory waiting period requirements
• When adding non-occupant co-borrowers, both the main borrower and non-occupant co-borrowers credit scores will be reviewed
• The lower of the two middle credit scores will be used for credit qualification purposes

Will Non-Occupant Co-Borrower Chances Of Buying Property Be Affected?

If you are a non-occupant co-borrower for a family member, the mortgage payment that the main borrower is paying will not affect you after 12 months.

• If non-occupant co-borrower decides to purchase a home after 12 months here is how it works:
  • Monthly mortgage payment of the main borrower will not affect them
  • Need proof of timely payment history from the main borrower
  • The mortgage payment co-signed for will not affect new mortgage company calculating debt to income ratios
  • This holds true as long as co-borrower can provide 12 months of timely canceled checks from the main borrower

Risks Of Co-Signing

Non-occupant co-borrowers credit will be negatively impacted if the main borrower is late on his or her mortgage payments. It will affect co-signers credit scores.

• Also, in the event, if the main borrower defaults on their mortgage loan, the mortgage company can come after co-signer for their assets since they were a co-signer on the loan of the main borrower

What If Co-Borrower Is Not Related By Blood, Law, Marriage

I have closed many mortgage loans where the non-occupant co-borrower was not related to the main borrower by blood, law, or marriage.  For example, one recent file I closed on, the non-occupant co-borrower was the boyfriend of the main borrower’s sister.  This case scenario worked because both the sister of the borrower and the boyfriend were living together and had a child together and it was classified as a common law marriage when in fact it was not legally a true marriage because it was not recorded. Technically, if Non-occupant co-borrowers are not related to the main borrower, they need to put down 25% versus 3.5%. Many lenders do not enforce or require proof of relationship and take the borrowers word if the co-borrower is related to the main borrower by law, blood, or marriage. However, under HUD Guidelines, co-borrowers needs to be related by law, blood, marriage. Fannie Mae and Freddie Mac allow co-borrowers but do not have to be related by law, marriage, blood.

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