Is Co-Signing By Non-Occupant Co-Borrowers Overrated? Blended Ratios Explained
“MY MOM MAKES $25,000 PER MONTH AND WILL CO-SIGN TO HELP ME QUALIFY”
A young borrower told us that b/c his Mom was a successful CFO who wanted to help him buy a home.
BUT, Mom had a $6,500 housing payment of her own, a $1,500 Range Rover payment, $3,000 of support payments to her ex, and credit card debt.
So, her debt ratio was 46% BEFORE we added her son’s $3,000 mortgage to the mix.
Mom mistakenly believed that the $13,500 of income over and above her $11,500 of debt payments would allow her to help her son.
That was not the case, however, so she could not co-sign or help her son.
BLENDED RATIOS = CO-SIGNING = NON-OCCUPANT CO-BORROWER
The above terms are all used interchangeably, although they sometimes have slightly different meanings.
All of the terms refer to the practice of adding the income of a non-occupant (someone with no intention of moving into the home) to an owner-occupant/buyer’s income in order to use the combined income to qualify for a purchase.
What many people fail to take into account, however, is that the non-occupant co-borrower’s debts also must be added to the occupant’s debts.
If the non-occupant co-borrower already has a lot of debt and high debt ratios, she cannot help an occupant qualify no matter how much income she brings to the table (like what happened in my above example).
The % of first-time buyers younger than 35 with a mortgage co-signer 55 or older rose to 3.2% in 2018, from 1.3% in 1994.
I “borrowed” the above factoid from Leonard Steinberg’s Compass blog, as it is what prompted me to write today’s blog.
The % of co-signers, while way up, remains very small for several reasons, including the following:
- CAN’T HELP: Many co-signers are not able to help, for reasons set out above.
- LENDERS OFTEN DON’T ALLOW THEM: Many lenders and loan programs don’t allow for co-signers, particularly our most competitive jumbo programs.
- EFFECT ON CREDIT: Co-signing borrowers are leery of having a mortgage on their credit report that someone else is responsible for.
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