When does it make sense to add a non-occupying co-borrower to your mortgage application? We’ve already talked about when it makes sense to consider adding a spousal co-borrower, who presumably is an occupying co-borrower – or someone who resides at the property with you.
But what about adding someone who won’t live with you? Well, that’s a different story. Unfortunately, this is a very loan program-specific decision.
Let me tell you why.
The main reason to add a co-borrower to your mortgage loan application is if they bring something to the table with respect to income and/or assets, helping you qualify for the loan or maybe helping you qualify for a better loan.
This still holds true for non-occupying co-borrowers – add them only if they bring something to the table to qualify or get a better deal – but the key to knowing whether someone is a good candidate is to know the quirks of the different loan programs available that allow non-occupying co-borrowers.
Income & Assets
Some conventional loan programs that allow a non-occupying co-borrower require that the main borrower qualify on his/her own when it comes to satisfying income and assets requirements. But this sort of defeats the purpose of adding the co-borrower in the first place if you’re only adding them to improve your chances of qualification?
If you can qualify on your own, then you may not even need the co-borrower at all.
Other loan programs, however, do make it easier to qualify with a non-occupying co-borrower. In addition to looking at the income and assets of both you and your co-borrower, these programs will rely on your co-borrower’s credit score if yours is too low. This could be an awesome option if your credit isn’t so great!
Another quirk to keep in mind is that many loan programs require that your non-occupying co-borrower be related to you.
This is yet another reason to be super nice to your parents, siblings, grandparents, aunts, uncles, nieces, nephews and step-relationships. Cousins are fair game for abuse since they don’t seem to be included in this list of potential related non-occupying co-borrower possibilities.
Some loan programs such as the FHA Non-Occupying Co-Borrower program, are more flexible with the relationship requirement. However, with this FHA program, if your co-borrower is not related to you, the down payment requirement will be much larger and the lender will insist that you have a long-standing relationship with your co-borrower – so start looking for a long-time family friend or co-worker.
Oh, and be prepared to show proof of this long-standing relationship because the lender will ask for it.
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The decision to add a non-occupying co-borrower to your home loan application requires you to understand the quirks of the loan program to which you’re applying.
At MortgageHippo, we’re busy making our mortgage calculator and closing plan better and better to help you sort through this mess to find and recommend loan programs that adjust to your particular needs.
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