Sometimes an opportunity presents itself to buy a property that for one reason or another you just can’t swing on your own. Other times, it might be that rates are so low (such as right now) that refinancing makes a lot of sense if you could just meet the qualifying terms.
Sometimes you just need help with the down payment. Perhaps it is your income calculation and your qualifying ratios that are making trouble for you. Other times, it may be the combination of the two which are causing problems.
It may not matter if you know someone who is willing to co-sign on the mortgage and become a guarantor. This person or persons would be known as a non-occupant co-borrower.
What is a Non-Occupying Co-Borrower?
Simply stated a non-occupying co-borrower is someone who helps you qualify for the mortgage but who actually resides somewhere besides the property that is being purchased or refinanced. It may be a parent, uncle or grandparent. It may be a child helping a parent qualify for a new loan or even a niece or nephew helping an aunt or uncle. Or, it can be someone totally unrelated.
There are a few qualifications that in general must be met:
The subject property must be a 1 – 4 unit primary residence. No investment properties or second homes can be considered with a non-occupant borrower.
If not a relative, the non-occupying co-borrower must have some other motivation besides equity participation for profit. There must be an existing, established relationship and motivation as determined by the underwriter. In other words, it can’t be like the shared equity deals of the 1990’s.
Fannie Mae requires that at least one of the borrowers must occupy and hold title to the property. BUT, Fannie does not allow the non-occupant’s income to be used for qualifying purposes. The only reason then to go Fannie is the equity and down payment that a non-occupying purchaser might be willing to provide. The same effect can be accomplished with a gift of equity without the corresponding liability.
This situation requires at least a 5% down payment so that the maximum loan-to-value is no more than 95%. Another additional requirement states that if the loan-to-value is greater than 80% then the occupying borrower must contribute 5% of their own funds. This equity contribution by the owner occupant must be “seasoned” and verified.
We’re finding in the current environment more and more borrowers considering this method for their own financing. Fortunately, it is still available to all those that may require it.
Would it work for you?
Got a question or a situation you’re not entirely sure would be applicable? Drop us a comment.
photo: Mosman Council