What is a Non Occupant Co Borrower?

A clip board with an application and the words loan with cosigner written across the topWhen it comes to securing a mortgage, having a non-occupant co-borrower can be a helpful option for those who may not qualify for a loan on their own. But what exactly is a non-occupant co-borrower and how can they benefit you in the homebuying process? In this article, we will explore the role of a non-occupant co-borrower, their responsibilities, and the advantages of having one on your mortgage application. So, if you're curious about what a non-occupant co-borrower is and how they can help you achieve your homeownership goals, keep reading to find out more.

Key Takeaways on Co-Borrower Requirements

  • A co-borrower shares equal responsibility for the mortgage with the primary borrower.
  • Co borrowers must document income/assets and meet minimum credit standards. 
  • Non-occupying co-borrowers can help qualify, but most have relationship limits.
  • Co borrowers must be obligated on the note; co-signers provide just a signature.
  • Adding a co-borrower can help you be eligible for a more significant loan amount and better rates.

Understanding co-borrower options, obligations, and lender guidelines is critical to getting a mortgage with help. This allows you to leverage their support while properly meeting compliance requirements.

What is a Co-borrower on a Mortgage? 

A co-borrower is any additional party, besides the primary borrower, responsible for repaying the mortgage loan. Both borrowers' names are on the mortgage, and they share equal rights and obligations to the property.

Common mortgage co-borrowers include:

  • Spouses - Husband and wife co-owning and occupying the home
  • Partners - Unmarried couples jointly qualifying for and liable for the loan 
  • Parents - Often added to help kids qualify with their income/credit
  • Siblings or family members - Closely related co-borrowers helping each other 
  • Investors - Multiple borrowers purchasing an investment property together

How Co-Borrowers Impact Mortgage Qualification

The main reason to add a co-borrower to a mortgage application is to improve loan qualification chances. Ways co-borrowers can help buyers get approved include:

  • Meeting income requirements - Combining multiple incomes to qualify 
  • Improving debt-to-income ratio - Increasing total income lowers DTI
  • Boosting credit score - Raising overall average credit score
  • Adding assets - Combining savings and reserves

For applicants falling slightly short in one area, an eligible co-borrower can provide the needed boost to get mortgage approval. Their income and credits become part of the full underwriting review.

Co-Borrower Requirements: Credit, Income & Qualifications 

For a co-borrower to help you qualify for a mortgage loan, they must:

  • Have a valid Social Security number and documented income/assets
  • Meet minimum credit history and score requirements per the lender and loan program 
  • Be equally liable and obligated to repay the mortgage with the other borrowers
  • Sign the mortgage note, loan application, and other legal paperwork
  • Go through full underwriting and provide all required financial documentation

Co-borrowers must fully commit to the long-term mortgage obligation like the primary borrower.

Can Co-Borrowers Be On Title Only?

Borrowers cannot be added to the property title without being obligated on the mortgage note. Lenders will require any party on the title to provide all documentation, undergo credit evaluation, and be liable for the debt.

The only exception is someone added to the title by will or inheritance who is not a mortgage borrower. In all other cases, names on the title must match borrower names on the loan docs.

Non-Occupant Co-Borrowers Explained

A non-occupant or non-occupying co-borrower does not live in the mortgaged property but helps qualify for the loan. They must still be obligated on the note and meet all co-borrower credit and documentation requirements.

Common examples include parents co-signing a child's mortgage to help them qualify or a partner not yet moving into the home. As with standard co-borrowers, they share responsibility for the debt.

Co-Borrower Rules and Guidelines

When applying for a mortgage with co-borrowers, essential guidelines include:

  • FHA - Allows non-occupant co borrowers, including interested parties like parents/relatives 
  • VA - Does not permit non-occupying co borrowers for VA loans
  • Fannie Mae - Allows relatives as non-occupant co borrowers on low down payment loans
  • Freddie Mac - Requires non-occupant co borrowers to be relatives or domestic partners

So, most lenders will permit non-occupying co-borrowers, contingent on meeting relationship requirements. Know the specific rules before assuming you can add certain co-borrowers.

Co-Signers vs Co-Borrowers: Key Differences

Co-signers and co-borrowers sound similar but have distinct differences when it comes to mortgages:

  • Obligation - Co borrowers must fully commit; co-signers may leave after closing
  • Occupancy - Co borrowers may live in homes; co-signers usually do not
  • Documentation - Co borrowers fully document; co-signers may provide limited info
  • Creditworthiness - Co borrowers underwritten; some co-signers sign
  • Mortgage rights - Co borrowers retain all ownership rights; co-signers may relinquish 

So, co-signers provide just a signature while co-borrowers share full responsibility. Co-borrowers provide maximum help qualifying.

The Benefits of Adding a Co-Borrower

Adding an eligible co-borrower can offer significant benefits like:

  • Increased borrowing power and higher loan amount options
  • Meeting income requirements for mortgage approval 
  • Lowered debt-to-income ratio to qualify for better rates
  • Improved credit score to get approved and receive discounted rates
  • Reduced need for mortgage insurance with higher down payments  
  • Lower monthly payments split between multiple borrowers

For applicants right on the cusp of approval, a co-borrower can provide just enough boost to secure financing.

Conclusion: What is a Non Occupant Co Borrower?

In conclusion, a non-occupant co-borrower can serve as a valuable resource for individuals seeking to secure a mortgage but facing challenges in qualifying on their own. By understanding the role and responsibilities of a non-occupant co-borrower, potential homebuyers can leverage this option to increase their chances of loan approval and potentially secure more favorable terms.

The advantages of having a non-occupant co-borrower on your mortgage application are numerous, including improved creditworthiness and increased borrowing power. By exploring this alternative financing approach, you may find that it opens up new opportunities for achieving your homeownership goals. Consider discussing this option with your lender or financial advisor to see if it could be the right choice for you.

SOURCE:
Guarantors, Co-signers, or Non-occupant Borrowers

Recommended Reading

Frequently Asked Questions about Conventional Loans
How Much Down Payment for a Conventional Loan?
The Benefits of a Conventional Loan
Conventional Loan Guidelines: Debt to Income Ratio Explained