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 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.
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.
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.
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.
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