A Non-Occupying Co-Borrower is often used to assist less established Home Buyers purchase their new home. The main reason that a Non-Occupying Co-Borrower is added to the loan, is to allow the Primary Borrower to qualify for a higher priced home, than he/she could otherwise purchase on their own. Over time, the expectation is that the Primary Borrower’s income will catch up to meet their mortgage and other financial obligations. Often, the goal is to refinance the mortgage loan at a later date, and remove the Non-occupying Co-Borrower.
The Non-occupying Co-Borrower will be obligated on the loan, just as the Primary Borrower is. The loan will be reported to the credit bureaus and will show up on the credit report as another loan that the borrower is responsible for.
The Non-occupying Co-Borrower is typically on Title as Owner to the home, as well.
There are two (2) types of Financing that will allow a Non-occupying Co-Borrower.
FHA – a government insured loan
Conventional – through Freddie Mac and Fannie Mae
The difference between the two options is that FHA requires the Non-occupying Co-borrower to be a relative or close friend. Freddie Mac and Fannie Mae do not require that.
The Down payment for FHA is 3.5% of the sales price.
The Down payment for Freddie Mac and Fannie Mae is 5%. (unless the borrower qualifies for an even further reduced down payment. Income restrictions typically apply – consult your Mortgage Moxie Help Desk for further clarification).
A further comparison between Freddie Mac and Fannie Mae is that Fannie Mae requires the down payment to come from the Primary Borrower, unless the Loan-to-Value is 80% or less. Freddie Mac and FHA do not have that requirement – the down payment can all come from a Gift.
Summary:
