Non-Occupant Co-Borrowers

More and more borrowers are being approved for their new home purchase and refinance loans by utilizing the income of a non-occupant co-borrower. The most common reason for this is to reduce the primary borrowers’ debt-to-income (DTI) ratio to below 43% to save the loan from a Non-QM (Non-Qualified) program, thus better pricing, interest rate, etc. The same effort can be made to get the DTI below 50% – 55% to keep the loan alive and within the standard of the Ability-to-Repay rule (ATR).

Different lenders can have their own unique guidelines, especially portfolio lenders in that they underwrite per their own in-house guidelines and to that point, aren’t obligated to sell the loan to a pre-determined financial institution.

Most lenders require that the loan is for a single family residence (SFR), owner-occupied to a maximum loan amount of $2,000,000 and loan-to-value (LTV) of 85%. Reserves requirement is increased to between 3 to 6 months reserves depending on the overall qualifications of the borrower and co-borrower. Available liquid assets required for down payment, closing costs including reserves do not have to come from the primary borrower. These monies can come from the non-occupant co-borrower or be a combined contribution from both borrowers. The additional borrower must be an immediate family member.

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