Facts About Using a Co-Signer on a Mortgage

Do you need a co-signer to buy a home? To help you decide, let’s review the reasons you might use a co-signer, the types of co-signers, and the various requirements lenders have for allowing co-signers.

When to use a co-signer

A common scenario is young people just starting out in their careers use parents as co-signers while they’re ramping up their income. Other lesser-known but still common scenarios include:

  • Divorcees use co-signers to help qualify for a home they’re taking over from ex-spouses.
  • People taking career time off to go back to school use co-signers to help during this transitional phase.
  • Self-employed borrowers whose tax returns don’t fully reflect their actual income use co-signers to bridge the gap.

Before using a co-signer, make sure all parties are clear on the end game. Will you ever be able to afford the home on your own? Is the co-signer expecting to retain an ownership percentage of the home?

Types of co-signers

There are two main types of co-signers: those that will live in the home, and those that will not. Lenders refer to these as occupant co-borrowers and non-occupant co-borrowers, respectively.

  • Non-occupant co-borrowers are the more common category for co-signers, so the lender requirements summarized below are for non-occupant co-borrowers.
  • Occupant co-borrowers who are co-signing on a new home can expect lenders to scrutinize the location and cost of their current home, and should also expect post-closing occupancy checks to verify they’ve actually moved into the new home.

Ownership considerations for co-signers

Lenders require that anyone on the loan must also be on the title to the home, so a co-signer will be considered an owner of the home.

If borrowers take title as joint tenants, the occupant and non-occupant co-borrowers will each have equal ownership shares to the property.

If borrowers take title as tenants in common, the occupant and non-occupant co-borrowers can define their individual ownership shares to the property.

Financial considerations for co-signers

Lenders allow occupant and non-occupant co-borrowers to have different ownership shares in the property because the Note (which is the contract for the loan) makes them both equally liable for the loan.

This means that if an occupant co-borrower is late on the mortgage, this will hurt their credit and the non-occupant co-borrower’s (aka the co-signer’s) credit.

Another co-signer risk is that the co-signed mortgage will often count against them when qualifying for personal, auto, business, and student loans in the future. But the co-signed mortgage can sometimes be excluded from future mortgage loan qualification calculations if the co-signer can provide documentation to prove two things to their new mortgage lender:

  • The occupant co-borrower has been making the full mortgage payments on the co-signed loan for at least 12 months.
  • There is no history of late payments on the co-signed loan.

Lender requirements for co-signers

Occupant co-borrowers must have skin in the game when using a co-signer, and lender rules vary based on loan type and down payment. Below are common lender requirements for co-signers. This list isn’t all-inclusive, and conditions vary by borrower, so find a local lender to advise on your situation.

  • For conforming loans (up to $417,000, and high-balance conforming loans up to $625,500 by county), Fannie Mae and Freddie Mac will allow for the debt-to-income ratio (DTI) to be calculated by simply combining the incomes of the occupant and non-occupant co-borrower. This is known as a “blended ratio,” and is especially helpful when the co-signer has most of the income.
  • Conforming loans will require at least a five-percent down payment to allow a co-signer.
  • For conforming loans with less than 20 percent down, lenders will require at least five percent of the down payment come from the occupant co-borrower. Flexible programs like Fannie Mae HomeReady loan allow blended ratios for co-signers, and go further by allowing income of people who won’t even be on the loan but that will verify in writing that they’ll be living in the home with you for at least 12 months.
  • Some jumbo loans above $417,000 (or above the conforming high-balance limit by county) will allow blended ratios for qualifying with co-signers. Your lender will advise based on your down payment, reserves left over after the loan closes, loan amount, credit score, and other components of your profile.
  • Many jumbo loans allow for the occupant co-borrower’s DTI to go as high as 50 percent when using a co-signer, but in most of these cases, at least 10 percent of the down payment must come from the occupant co-borrower.
  • Select jumbo loans allow for the occupant co-borrower’s DTI to go as high as 75 percent when using a co-signer, but there will be many other requirements, and the rates won’t be as competitive.

Related:

Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Zillow.

The post Facts About Using a Co-Signer on a Mortgage appeared first on Zillow Porchlight.

from Zillow Porchlight http://www.zillow.com/blog/facts-using-co-signer-mortgage-198462/

Advertisements

US Bank to use HLP for foreclosure prevention efforts

US Bank is partnering with HLP to use the company’s web portal and software offerings in its foreclosure prevention and loss mitigation efforts, joining Ditech Financial and 19 of the 20 largest #mortgage servicers in the country that currently use HLP’s services. http://www.housingwire.com/articles/37158-us-bank-to-use-hlp-for-foreclosure-prevention-efforts ❤️ #share #mortgage

Bank of America well ahead on national #mortgage settlement deadline

Almost two years after the settlement was announced, Bank of America is nearly two-thirds of the way done on fulfilling its $7 billion promise of consumer relief required as part of its $16.65 billion settlement with the U.S. Department of Justice and the attorneys general of six states. And by the looks of things, it’s ahead of schedule for fulling the requirement. http://www.housingwire.com/articles/37157-bank-of-america-well-ahead-on-national-mortgage-settlement-deadline ❤️ #share #mortgage

SEC fines First #mortgage $12.7M, bans 6 execs for defrauding Ginnie Mae investors

Several senior executives at First #mortgage Corporation lied about the performance of the #mortgages the company originated so they could pull the #mortgages out of #mortgage-backed securities guaranteed by Ginnie Mae, then turn right back around and sell the #mortgages back into new #mortgage bonds, defrauding investors out of $7.5 million, the Securities and Exchange Commission said Tuesday. http://www.housingwire.com/articles/37156-sec-fines-first-mortgage-127m-bans-6-execs-for-defrauding-ginnie-mae-mortgage-bond-investors ❤️ #share #mortgage

United Wholesale #mortgage hires new chief technology officer

Bressler will fill the role of chief technology officer for the company, and will be working closely with the company’s chief information officer to further develop the company’s technology platform. See why UWM is calling this hire a “game changer.” http://www.housingwire.com/articles/37155-united-wholesale-mortgage-hires-new-chief-technology-officer ❤️ #share #mortgage

Default servicing law firms McCalla Raymer, Pierce and Associates announce merger

The world of default #mortgage servicing is now a little smaller, as default servicing law firms McCalla Raymer and Pierce and Associates announced plans to merge the two firms into one. Here’s what both firms say about the merger. http://www.housingwire.com/articles/37152-default-servicing-firms-mccalla-raymer-pierce-and-associates-announce-merger ❤️ #share #mortgage

Guardian #mortgage Company opens new location in Austin

Guardian #mortgage is set to open its sixth office in Texas, and 13th office nationwide. The company’s expansion plans, however, do not end with Austin. Here, the company talks about its future expansion plans as it looks to capture more #mortgage share. http://www.housingwire.com/articles/37150-guardian-mortgage-company-opens-new-location-in-austin ❤️ #share #mortgage