Qualify using a Non-Occupant Co-Borrower
One of the biggest things that we do as lenders on a daily basis is solve problems. If you have a buyer who does not qualify, and it's not because they have bad credit, or related issues such as a foreclosure or bankruptcy, the issue can almost ALWAYS be solved in one of two ways - increasing income, or decreasing debt. ONE way to increase income is through the use of a "Non-Occupant Co-Borrower".
SO WHAT IS A NON-OCCUPANT CO-BORROWER?
A Non-Occupant Co-Borrower is a person who goes on a loan as a borrower, but has no intention of occupying the subject property. So, in cases where the prospective buyers of a home are unable to qualify due to lack of income, a person CAN go on the loan who does not intend to occupy. That person is considered a "Non-Occupant Co-Borrower" similar to a "Cosigner" on a car that they do not intend to drive. The occupants don't have to have any income at all. They just have to have sufficient credit to qualify to be on the loan, assets to close, etc., and THEY satisfy the occupancy requirement.
CAN YOU GIVE ME AN EXAMPLE?
Lets say my kids are going to college out of state. I plan on staying in my home, and my kids don't have income as students. If I wanted them to purchase a home in lieu of living in a dorm on campus, I could do so, and this is how I would structure it:
Son/Daughter have to have credit that would qualify them, and the fact that they plan on living there AND ITS FEASIBLE that they will occupy the property is required. But - my income can be used and "blended" with their income and debt, and if we qualify together they can purchase. My income and debt is combined with their income and debt. If we qualify, we purchase together and I go on the loan and title, but the interest rate/terms are MUCH better because it is an owner occupied purchase, and not an investment property.
WHAT KIND OF LOANS ALLOW FOR NON-OCCUPANT CO-BORROWERS?
FHA and Conventional loans allow for non-occupant co-borrowers with blended ratios. (Blended ratios means occupant doesn't have to qualify on their own). VA Does not allow this because of the limitations in who can be a borrower on a VA loan. So, if you have a conventional client, or FHA client who either doesn't qualify, or doesn't qualify for what they need, send them our way. We can identify ways to decrease debt, or increase income and one of the key tools that we use on a regular basis is a non-occupant co- borrower.
If you have any questions about this, or any other guideline questions, send them our way! We'd love to help out and be a resource for you, your business, and your clients!