Adding Non-Occupying Co-Borrower Into Conventional Loan

In some situations, you might require assistance to bring your house ownership aspirations to reality. You may be able to co-borrow with a non-occupant if you’re looking for a home and don’t meet the financial criteria for a conventional mortgage loan.

Most individuals would want to own their own homes. Especially for the younger generation that has given up several years of education in order to pursue a degree that promises a illustrious career for years to come. Many young people, on the other hand, are unwilling to wait 5+ years after graduation before investing for a down payment on a house.

Fortunately, because FHA and Freddie Mac provide a mechanism for a parent or other relative to co-sign for a home without having to reside in it, there is hope. It is referred to as the non-occupying co-borrower.

Non-occupant co-borrowers can be included in conventional and FHA loans. The United States Department of Veteran Affairs does not allow non-occupant co-borrowers on VA home loans. Only married spouses of veteran borrowers are allowed as co-borrowers.

USDA does not allow non-occupant co-borrowers. Both Fannie Mae and Freddie Mac accept numerous non-occupant co-borrowers as additional members of the primary borrower. Both borrowers and co-borrowers must fulfill lending standards. The lower borrower’s/non-occupant co-borrower median credit score is used to determine their credit score. We’ll go through and analyze the Typical Loan With Non-Occupant Co-Borrower Rules in this post.

Does Non-Occupy Co-Borrower Live in The House?

A non-occupying co-borrower is someone who is willing and able to become a mortgage borrower but will not be living in the property. Parents, siblings, children, nieces and nephews are all examples of this.The loan officer will consider the non-occupying co-borrowers income and obligations when calculating the debt-to-income ratio. They are, in a word, “partners” in homeownership.

qualifying for conventional loan with a co-borrower

When Adding a Co-Borrowers Make Sense For Conventional Loan?

Even if you have excellent credit, you won’t be able to get a conventional loan if your income isn’t documented enough. No matter how excellent their credit is, homebuyers who can’t provide consistent revenues will not be eligible for a ceonventional mortgage loan. Borrowers with sufficient proven earnings and poor credit might qualify for a mortgage loan.

Borrowers with excellent credit but insufficient verified income are not accepted. Many home buyers who are self-employed or deduct a lot of expenses on their tax returns have difficulties proving earnings and qualifying for a loan.

Does a Co-Borrower Own PArt Of The Home?

The non-occupying co-borrower has ownership stakes in the home, depending on the mortgage that is taken out and any conditions and criteria. Because they are borrowers, non-occupant co-borrowers will be required to sign the loan but will not need to be on the property title. Non-occupant co-borrowers for FHA loans must be on both the title and mortgage.

The non-occupying co-borrower is held responsible for the loan’s repayment of the conventional loan If the resident of the house fails to make payments, the non-occupying co-borrower will also receive late notifications.

When selecting a non-occupying co-borrower, ensure that it’s someone you can trust and has faith in you.

Debt To Income Ratios Requirements For Conv Loan

There are limits on debt-to-income ratios depending on the mortgage program. Conventional loan programs have debt-to-income ratio limitations that are generally limited to 50%. The debt-to-income ratio is limited to 56.9% in order for an FHA loan approval/eligibility to be given by the Automated Underwriting System Approval. The maximum amount of USDA assistance is $41,000. VA loans do not have credit score requirements or any debt-to-income ration limits. Depending on the lender, Jumbo mortgage loan programs limit debt to income ratios to 40% to 45%. A non-occupant co-borrower is a relative of the primary borrower.

Conforming loans may be used to satisfy qualification requirements if the non-occupied co-borrower’s income can be utilized. A non-occupant co-borrower is someone who goes on the mortgage note with you, as well as someone who does not go on title to the home. In order to qualify for mortgages, cash purchasers and individuals without income or self-employed persons that write off a lot of expenses generally need a non-occupant co-borrower.

Non-occupy co-borrower on conventional loan

FHA NON-Occupancy Co-Borrower Requirements

Non-occupying co-borrowers are not required for every loan, but their requirements will vary from one loan to the next. For example, at least one individual must reside in the property as a primary residence under FHA guidelines.

based on the FHA, in “HUD 4155.1, Chapter 2 Section B, A non-occupying co-borrower transaction features two or more borrowers, one of whom will not live in the property as a primary residence. “A maximum mortgage of 75 percent LTV is permitted when there are two or more borrowers, but one or more will not live in the property as a primary residence.”Tell your loan officer about any co-borrowers you may have before taking out a home loan with one. This will assist your lender in determining the best course of action and any prerequisites or limitations that may apply.

Differences Between FHA and Conventional Loan With Non-Occupant Co-Borrower

FHA loans are a mortgage program offered by the United States Department of Housing and Urban Development (HUD) that helps people obtain home financing. Non-occupant co-borrowers who have little or no income may qualify for FHA loan programs to fulfill the required debt-to-income ratios. In fact, FHA permits more than one person as a non-occupy co-borrower.

The primary borrower may have no income and rely on non-occupant co-borrowers earnings. Non-occupant co-borrowers are typically relatives who are connected by blood, marriage, or law.

The following individuals may be eligible as non-occupant co-borrowers:

  1. aunt
  2. grandchild
  3. brother in law
  4. sister in law
  5. son in law
  6. daughter in law
  7. father in law
  8. mother in law
  9. son
  10. parent
  11. uncle

All above co-borrowers who are not related to the primary borrower by blood, marriage, or law, there is 25 percent down payment required.

How Do I Get Approved For a Conventional Loan With a Non-Occupant Co-Borrower?

Many individuals with excellent credit but insufficient income to qualify for an FHA loan choose to receive a conventional loan rather than an FHA loan due to the high upfront FHA MIP cost. Non-occupant co-borrowers are not permitted by Fannie Mae, however that restriction has now been removed.

Non-occupant co-borrowers are allowed by both Fannie Mae and Freddie Mac. Non-Occupant Co-Borrowers do not have to be related by law, marriage, or blood on conforming loans. There may be numerous non-occupant co-borrowers on a traditional loan. Fannie Mae does not allow a borrower with no income and an occupant borrower’s income of less than $15,000.

The main borrower must demonstrate qualifying income and cannot have zero revenue. Freddie Mac allows the main borrower and any non-occupant co-borrowers to utilize their income. Yes, you


Peter has 7+ years of experience in residential lending. He is a licensed Realtor in the Chicagoland area.