The home buying experience can be an overwhelming experience that can be exhilarating, fun, stressful and exhausting. The process of securing a mortgage, successfully bidding on a home and completing the transaction can be lengthy, complex and involve seemingly endless professionals. Those professionals may include a buyer’s agent, a loan officer, a home inspector, title […]
What is a non-occupying co-borrower?
In some cases, you may need a little help to make your homeownership dreams come true. If you are in the market for a home and find yourself falling short of the financial requirements needed to secure a mortgage, you may have the option of co-borrowing with a non-occupant.
A non-occupying co-borrower doesn’t live in the home
A non-occupying co-borrower is someone that is willing and able to be a borrower on a mortgage but will not be living in the home. Common examples include parents, siblings, children, and extended relatives like an aunt or uncle.
The non-occupying co-borrower’s income and liabilities are considered by the loan officer and will be included in the debt-to-income ratio. In short, they are “partners” in homeownership.
Non-occupying co-borrower requirements differ between loans
The requirement for non-occupying co-borrowers will differ from loan to loan. For example, at least one person is obligated to live in the home as a primary residence for FHA loans.
According to the FHA, in “HUD 4155.1, Chapter 2 Section B, A non-occupying co-borrower transaction involves two or more borrowers where one or more of the borrower(s) will not occupy the property as his/her primary residence. When there are two or more borrowers, but one or more will not occupy the property as his/her principal residence, the maximum mortgage is limited to 75% loan-to-value (LTV).”
Before taking out a home loan with a non-occupying co-borrower, tell your loan officer about it. This will help your lender determine the path forward and any requirements and restrictions.
Non-occupying co-borrowers may or may not have ownership stakes in the home
Depending on the mortgage that’s taken out and any restrictions and requirements, the non-occupying co-borrower may or may not have ownership stakes in the home.
For a conventional loan, because they are a borrower, non-occupant co-borrowers will have to sign on the loan, but they don’t need to be on the property title.
For FHA loans, non-occupant co-borrowers are required to be on both the title and the mortgage.
Non-occupying co-borrowers are also responsible for repayment
When a non-occupying co-borrower borrows on a loan, they’re also responsible for the loan’s repayment. If the borrower living in the home falls behind on payments, the non-occupying co-borrower will also get late notices.
When choosing a non-occupying co-borrower, make sure that it’s someone you trust and who trusts you.