Buying a home is a huge investment, and few lenders will approve your mortgage application without proof of reliable income and a strong credit history. Adding a non-occupant co-borrower to your application may raise your chances of approval, but your co-borrower needs to meet certain qualifications before the lender will give the okay.
About Non-Occupant Co-Borrowers
A non-occupant co-borrower is someone who signs your mortgage note and takes joint responsibility for the debt but doesn't live in the home that secures the loan. If you use a non-occupant co-borrower on your mortgage application, the lender may consider the co-borrower's income or credit history along with yours when deciding whether to approve the loan. The non-occupant co-borrower may also pay part of the down payment on the property.
If you're applying for a conventional loan with a non-occupying co-borrower, you must pay at least 5 percent of the down payment yourself. You can include the co-borrower's income on the application only if the lender underwrites the loan manually. If the lender uses automated underwriting, your income must be high enough to afford the payment on your own. Lenders consider your income high enough as long as the mortgage payment is no more than 43 percent of your gross monthly income.
FHA will consider both the non-occupying coborrower's credit history and income when determining how much you can afford to borrow. However, when you apply with a non-occupying co-borrower, FHA limits mortgages to 75 percent of the value of the home, unless you are related to the co-borrower by law, blood or marriage. If you are related to the co-borrower by law, blood or marriage, FHA allows mortgages of up to 96.5 percent of the home's value.
Both conventional and FHA lenders will let you include a non-occupant co-borrower on a refinance application. However, under FHA guidelines, you can't use a non-occupant co-borrower to buy or refinance a property with more than one unit. If you apply for a conventional mortgage and the lender uses automated underwriting, your co-borrower won't need to provide employment or income verification. Both FHA and conventional lenders will always ask for a copy of the co-borrower's credit report.
Amanda McMullen is a freelancer who has been writing professionally since 2010. She holds a bachelor's degree in mathematics and statistics and a second bachelor's degree in integrated mathematics education.