A non-occupant co-borrower is a person who signs your mortgage, shares the debt and adds their income to the application without moving into the home. It's usually a parent, grandparent or other relative helping a buyer whose own income comes up short. The lender adds the two incomes together and the two sets of monthly debts together, then measures the debt-to-income ratio (DTI) on the combined numbers.
The rules on FHA, Conventional, VA and USDA
| Program | Who can be a non-occupant | Down payment with one on the loan |
|---|---|---|
| FHA, single-family home, family member | Parents, grandparents, children, siblings, aunts, uncles, in-laws | 3.5% (96.5% loan-to-value) |
| FHA, single-family home, not family | Anyone else | 25% (75% loan-to-value) |
| FHA, 2 to 4 units | Family or not | 25% (75% loan-to-value) |
| Conventional, automated approval | Family or not | 5% (95% loan-to-value) |
| Conventional, manual approval | Family or not | 10% (90%), and your own DTI can't pass 43% |
| VA | The people on the loan are expected to live in the home | |
| USDA | Not allowed |
Loan-to-value (LTV) is the loan divided by the price. The FHA family rule is the one most Florida buyers use, since it keeps the down payment at 3.5% and that 3.5% can be a gift.
A worked example with a parent's Social Security
Jordan earns $3,800 a month gross and pays $350 on a car. On FHA, the housing payment can reach 46.9% of income with an automated approval, and total debts can reach 56.9%.
- Jordan alone: $3,800 × 46.9% = $1,782.20 for housing. The total-debt cap is $3,800 × 56.9% = $2,162.20, minus the $350 car, which leaves $1,812.20. The lower figure wins, so Jordan's house payment tops out at $1,782.20.
- With Mom on the loan: she receives $2,400 a month in non-taxable Social Security and has no monthly debts. FHA grosses up non-taxable income by 15%, so it counts as $2,760. Combined income is $6,560. Housing can reach $6,560 × 46.9% = $3,076.64, and the total-debt cap of $3,732.64 minus $350 leaves $3,382.64. The house payment now tops out at $3,076.64.
Her income adds $1,294.44 a month of room for the house payment. Conventional grosses up the same income by 25%, which would count it as $3,000.
What the co-borrower brings besides income
Their debts count, so a parent with a large car payment adds less than the paycheck suggests. Their credit score counts as well: FHA uses the lowest middle score among all the borrowers, so a co-borrower at 580 or higher keeps the 3.5% down option open. They're legally responsible for the full payment, and the loan will show on their credit report.
The co-signer calculator turns a co-borrower's income and debts into a price. To see how a parent, grandparent or sibling changes your approval, call AAA Capital Funding at 888-601-8344 and have their income figures handy.