A non-occupant co-borrower (NOCB) is someone who co-signs a mortgage, shares legal responsibility for repayment, does not live in the home, but helps the borrower to qualify. A NOCB is useful to strengthen the loan application by contributing, income and creditworthiness, and so improve the primary borrower’s debt-to-income ratio and increase their chances of mortgage approval. Lenders consider the combined income, assets, liabilities, and credit scores of all borrowers when making an underwriting decision. The borrower can have $0 income and still qualify with a NOCB, as long as the income provided by the NOCB is enough to support the all of their combined liabilities. On of the most frequent uses of a non-occupant co-borrower is when a parent helps their child buy their first home. This is a strategy that a parent can use to buy a primary residence for a child who is a college student and has credit but has no income.
A key consideration is that ALL borrowers on a mortgage are legally responsible for mortgage payments. If the primary borrower defaults, the co-borrower is equally liable,. Any late or missed payments will negatively affect the credit scores of all borrowers on a mortgage. Additionally, removing a NOCB from obligation on a mortgage usually requires refinancing, and at that time, the borrower will be required to qualify on their own.
Conventional Fannie Mae and Freddie Mac mortgages allow non-occupying co-borrowers on 1-unit, primary residence purchase transactions and rate and term refinances with a minimum 5% down payment. NOCB are commonly relatives (grandparents, parents, siblings) but can be anyone who qualifies, provided they are not affiliated with the seller or builder. The borrower must occupy the home as their primary residence.
FHA mortgages permit non-occupant co-borrowers to help borrowers qualify. If the NOCB is a family member, the down payment requirement may be as low as 3.5%. If the NOCB is NOT a family member or fiancé, a 25% down payment is typically required. The borrower must occupy the home as their primary residence.
JUMBO loans generally base their guidelines on those of Fannie Mae and Freddie Mac. And so although many jumbo loan programs do allow non-occupant co-borrowers, not all do, and guidelines vary from lender to lender. Jumbo loans often require the NOCB to to a family members. Some jumbo lenders may require higher credit scores and/or larger down payments when there is an NOCB. The borrower must occupy the home as their primary residence.
VA mortgages do not allow non-occupant co-borrowers. All borrowers on a VA loan must occupy the home.
Please give us a call to discuss your situation and see if a non-occupying co-borrower can help you to qualify!