Key Takeaways
- A non-occupant co-borrower doesn't live in the home they co-sign for.
- They help improve loan approval chances with their income and credit.
- They're legally responsible for payments if the borrower defaults.
- They can be used with FHA, USDA, VA, and conventional loans.
Article Summary
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.
Non-Occupant Co-Borrower: Explained in Plain English
A non-occupant co-borrower is a person, often a family member, who agrees to sign for a mortgage loan alongside the primary borrower but does not live in the home 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. A co-borrower can help the home buyer strengthen their loan application and improve the chances of mortgage approval.
A non-occupant co-borrower is similar to a mortgage co-signer in that both are legally responsible for mortgage repayments if the primary home buyer falls behind, and a mortgage default negatively affects both parties' credit scores.
However, unlike co-signers, non-occupant co-borrowers receive an ownership stake in the home.
Non-occupying co-borrowers are allowed 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. The buyer has a steady job and ample savings, but their credit score is too low for mortgage approval. To help, the buyer's 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, leading to mortgage approval. The buyer and the parent understand that if the buyer cannot make on-time mortgage payments, the parent's credit will be affected.
Common Questions About Non-Occupant Co-Borrower
Get answers to frequently asked questions about non-occupant co-borrowers, including responsibilities, credit impact, and qualification requirements.
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. The responsibility is shared equally for the mortgage.
How does being a non-occupant co-borrower affect credit?
Being a non-occupant co-borrower means the mortgage appears on the credit report. Missed payments by the primary borrower can negatively 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 help the primary borrower secure a loan.
Can a non-occupant co-borrower later live in the home?
While specific loan terms can vary, there are generally 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. Financial stability is key to 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. These debts impact the overall debt-to-income ratio.
Are there limits on the number of non-occupant co-borrowers for a mortgage?
Typically, there is no strict limit on the number of non-occupant co-borrowers. However, 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 through refinancing. The homeowner can refinance the home solely in their own name. Use our refinance breakeven calculator to determine if refinancing makes financial sense.
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 making mortgage payments.
