A non-occupying co-borrower is a person who may be added to a mortgage loan to help you qualify for a mortgage. A non-occupying co-borrower is beneficial from an income or credit perspective. If you desire to purchase a home but your income or credit score is low, some mortgage loan programs are set in place to allow applicants to apply for a loan with a co-borrower who does not plan to live in the home.
Some mortgage loans are considered owner-occupied loans. To qualify for these loans, you must occupy or take residence in the property within a certain time frame, usually within 30 days after closing, and you must live in the home for at least the first 12 months after closing. If the mortgage loan program allows a non-occupant co-borrower, the co-borrower is not required to take residence in the property at any time. However, the co-borrower is also obligated to the mortgage repayment terms.
Some lenders who allow non-occupant co-borrowers, such as Fannie Mae and Freddie Mac and some conventional home lenders, require a non-occupant borrower to be a relative of the person who will be residing in the home. The non-occupant borrower must be related to you by blood, marriage or law to qualify as a co-borrower who will not reside in the home. This additional limitation exists with many first-time homebuyer programs, and the borrower may be allowed to tender a lower down payment. For example, you may purchase a home as a non-occupant borrower and to the mortgage the name of a child who may is a full-time college student or has low income.
During the underwriting process, the loan officer will determine your ability make the monthly loan payments as required by the terms of the mortgage. Your monthly income is key to the determination of whether you qualify for the loan. Lenders use a debt-to-income ratio to determine whether you and the non-occupant co-borrower qualify for the mortgage. Depending on the lender’s guidelines, you may be required to qualify separately from the co-borrower; however, if a non-occupant co-borrower is allowed, the total debt-to-income ratio to qualify you for the loan may be lower. Some lenders will rely on the non-occupant co-borrower’s income entirely to determine whether the debt-to-income ratio qualifies for the mortgage loan.
Your credit history and credit score will be reviewed by the loan officer to determine your creditworthiness and whether your credit presents an acceptable risk for the lender to approve a mortgage loan. If your credit score is too low, the lender may rely on the non-occupant co-borrower’s credit score to determine your eligibility.