What is a Non-Occupant Co-Borrower?

A non-occupant co-borrower is a person who co-signs a mortgage loan but does not live in the property that the mortgage is for.

A Longer Definition: Non-Occupant Co-Borrower

A non-occupant co-borrower is someone – often a family member – who agrees to sign for a mortgage loan alongside the primary borrower but does not live in the home that’s being financed.

Non-occupant co-borrower arrangements are most common with first-time home buyers and buyers whose income, credit score, or debt-to-income ratio fall short of mortgage guideline requirements. Co-borrowers can help the home buyer enhance their loan application and improve their chances of getting their mortgage application approved.

A non-occupant co-borrower is similar to a mortgage co-signer in that they’re legally responsible for mortgage repayments if the primary home buyer falls behind, and a mortgage default negatively impacts both parties’ credit scores.

However, unlike co-signers, non-occupant co-borrowers get an ownership stake in the home.

Non-occupying co-borrowers are permitted with conventional mortgages, FHA loans, USDA loans, and VA loans.

Non-Occupant Co-Borrower: A Real-World Example

Imagine a first-time home buyer ready to purchase a home. They have a steady job and ample savings, but their credit score remains too low to get mortgage-approved. So, to help out, their parent, who lives in a different region of the country, steps in to assist.

The parent agrees to become a non-occupant co-borrower on the mortgage.

The parent’s well-established credit history (and additional income) strengthen the buyer’s mortgage application, and the mortgage gets approved. The buyer and their parent acknowledge that if the buyer cannot make on-time mortgage payments, the parent’s credit will be affected.

Common Questions About Non-Occupant Co-Borrower

Is the non-occupant co-borrower responsible for loan repayment?

Yes, the non-occupying co-borrower is legally obligated to repay the loan if the primary borrower defaults, sharing equal responsibility for the mortgage.

How does being a non-occupant co-borrower affect credit?

Being a non-occupant co-borrower means the mortgage is listed on their credit report. Missed payments by the primary borrower can adversely affect the co-borrower’s credit score.

Can a non-occupant co-borrower be a relative?

Yes, a non-occupant co-borrower can be a relative or a close friend, allowing them to assist the primary borrower in securing a loan.

Can a non-occupant co-borrower later live in the home?

While specific loan term can vary, generally, there are no restrictions preventing a non-occupant co-borrower from residing in the property in the future.

What qualifications are needed for a non-occupant co-borrower?

A non-occupant co-borrower must have a strong credit history and sufficient income to qualify. Their financial stability is key in enhancing the loan application.

Does the non-occupant co-borrower’s debt affect the loan process?

Yes, the non-occupying co-borrower’s existing debts are considered in the loan application, impacting the overall debt-to-income ratio.

Are there limits on the number of non-occupant co-borrowers for a mortgage?

Typically, there’s no strict limit on the number of non-occupant co-borrowers, but lenders may have specific guidelines or preferences.

How does a non-occupant co-borrower exit the mortgage?

A non-occupant co-borrower can be released from the mortgage via a refinance. The homeowner can refinance the home into their own name solely.

Can a non-occupant co-borrower claim tax benefits on the mortgage?

Generally, non-occupant co-borrowers cannot claim tax deductions on the mortgage unless they are also contributing to the mortgage payments.