Using a cosigner to buy a home is a topic that doesn’t get enough play in my opinion. My cousin read a recent article I wrote about how student loan debt affects qualifying for a mortgage and he made a comment that triggered a thought in my mind. Calculating student loan debt payments is only one part of the equation. What happens if your student loan debt is too large and you can’t qualify for a mortgage? The good news is that you don’t have to wait until you land a sweet job that pays a ton in order to qualify for a home loan. Here’s something you probably didn’t know, you can qualify for a home loan with a co-signer! Here’s the scenario:
You: Fresh out of college, working the mail room with your newly minted undergraduate degree.
Your parents: Established, making good money and they want you out of their house, for good this time.
Using a cosigner to buy a home.
What is a co-signer and why may you need one? I talked about debt to income (DTI) ratios in my last post, please take a look at why those are important. If your DTI exceeds guidelines you can’t get a home loan, period. A co-signer can help you qualify simply because the addition of their monthly income to yours will bring your DTI down, allowing you to qualify for that home loan. There are some serious differences with lenders and how they view co-signers, I’ll go over the details now. Fannie Mae and Freddie Mac are two of the largest purchasers of mortgages on the secondary market, they set the rules because companies rarely hold mortgage notes to maturity. We need to look at how both of those lenders qualify the use of a cosigner to buy a home. In the lending industry a co-signer is actually called a non-occupant co-borrower, or non-occ.
Fannie Mae will allow a borrower to use a non-occ co-borrower. That’s sounds cool, right? Wrong! Even though Fannie allows you to use a non-occ they’ll still make you fully qualify for the payment and use your DTI ratio without using the other income. For instance, you make $2,000/mo. and your parents make $20,000/mo. Fannie mae says, “Great, we’ll give you credit for $2,000/mo. and not use the parents income.” What’s the point of having a non-occupant co-borrower if the lender is still going to make you fully qualify on your own, there’s no point right? A side note for everybody reading this, if you expect common sense to prevail in the mortgage business you’re fooling yourself and will become extremely frustrated. Getting a mortgage is one of the most ridiculous processes you’ll ever go through, trust me on this. Ok, so Fannie Mae sucks, let’s take a look at Freddie Mac.
Freddie Mac allows a non-occupant co-borrower, and they don’t do what Fannie does, they’ll actually blend the incomes together to come up with one total monthly income and one total monthly debt. You don’t have to qualify on your own, you can use the income of the other. So if your mail room job is paying a whopping $2,000 per month and your parents make $20,000 per month your total monthly income combined will be $22,000/mo.
It’s important for you to work with a company that has access to both Fannie Mae, and Freddie Mac lending products. As a mortgage broker I have access to multiple lending sources and can place your loan with the best fit, and the best price. Call me today to discuss your scenario.