By Doug Goelz, Mortgage Services
With the high cost of properties in San Francisco, if you are fortunate enough to have a generous and financially‐comfortable family, you may want to consider having a relative help you buy your home. If you don’t have sufficient income* to qualify for the financing you need, a relative can help you qualify for the loan by becoming a non‐occupant co‐borrower.
How It Works
With a non‐occupant co‐borrower, you can get a financial boost, on paper, to help you qualify for the financing you want because lenders add the non‐occupant co‐borrower’s income to yours, and their assets to yours, when calculating qualifying income and the funds required for the down payment and reserves.
Lenders also consider the monthly obligations and credit scores of the non‐occupant co‐ borrower. So, if a potential non‐occupant co‐borrower has bad credit, and/or high monthly payments on credit cards or other properties, including them on your loan may not be beneficial.
The non‐occupant co‐borrower does not have to be on title for the property.
Eligibility
In general, non‐occupant co‐borrowers have to be relatives and are allowed only on purchases of a single unit primary residence such as a condo or single family home. Lenders will consider the property a primary residence as long as you are going to live there, even if the non‐occupant co‐borrower lives elsewhere.
Impact On The Non‐Occupant Co‐Borrower
The loan amount and monthly mortgage payment for your loan will appear on the non‐occupant co‐borrower’s credit report. This may have a big impact on his or her ability to finance another property in the future. Also, if you fail to make payments on the loan, the non‐occupant co‐ borrower’s credit score will be severely impacted (as will yours).
Even if you alone make all the mortgage payments for months or years, you will have to refinance the property in the future in order for the non‐occupant co‐borrower to be relieved of the obligation, and for the loan to stop appearing as an obligation on his or her credit report. If you are using a non‐occupant co‐borrower because you don’t have enough income now to qualify for the loan you want, keep in mind that you may not be able to refinance the loan in the future until you have sufficient income. Hence, it may be years before the non‐occupant co‐ borrower is able to come off the loan.
Your Next Steps
If you want to consider a non‐occupant co‐borrower, talk to your lender about the financing you can qualify for on your own. Then, talk to a family member who is the potential non‐occupant co‐borrower. If your relative agrees, your lender can gather the necessary information from the relative (similar to the information you have already provided for yourself) and determine your purchasing power with a non‐occupant co‐borrower.
* If the down payment is your hurdle for buying a home, lenders will allow family members to give part or all of the down payment to you. If their only role is giving you money for the down payment, the family member does not need to be a non‐occupant co‐borrower or be obligated on the loan.
Questions? Feel free to get in touch with me at 415‐730‐4665 or [email protected]
