Mortgage Options with Co-signers

By james on February 20, 2010

Getting qualified for a loan these days has become increasingly difficult. Particularly for those who are self employed, or otherwise have more complex income documentation problems. Since there are no more "stated income" or "no-doc mortgages" available anymore, the loan industry has reverted back to late nineties approval practices. All income must be documented, and the only acceptable income is IRS verified- meaning filed tax returns or W2 statements are the only thing we can count for a borrowers qualification.

Under these approval parameters, it is becoming increasingly common for borrowers to enlist the help of family members to act as cosigners on the mortgage. The legal term for these cosigners is "non-occupying co-mortgagor".

The idea is that we would use the additional income to help support and prove the borrowers ability to repay the loan. In reality, it isn't quite as simple as one would hope. Conforming mortgage guidelines don't give much weight to the income of the non-occupant coborrower anymore. In fact, the conforming rules state that the occupying mortgagor be able to prove the ability to support the new debt service on their own. So using a cosigner in a conforming loan scenario is rare, and usually is there for the purposes of proving deeper and better credit.

The mortgage program that gives the most weight to the income of non-occupant cosigners is the FHA. Whenever I have a borrower who can't document enough income to qualify, but in truth DOES have the means to support a mortgage, I point them to the FHA with a cosigner. The FHA will completely allow all income from the non occupant to count towards the debt to income ratio.

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