While Freddie Mac has allowed a non-occupying co-borrower to help a family member buy a house in NC – it’s been difficult to get these loans approved. Even on a primary residence purchase transaction, or for a rate term refinance, it was impossible to make it work, simply because PMI /mortgage insurance was not available for the Freddie Mac Non Owner Occupied Co-Borrower Mortgage Program.
This meant that if you wanted to use the Freddie Mac Non-Occupying Co-Borrower loan, you had to either put 20% into the transaction, or you had to use the FHA Non-Occupying Co-Borrower alternative. Recently, several PMI Companies agreed to offer PMI coverage on these mortgage loans! With PMI coverage now available, we can now offer 95.00% Conventional loans with a non-owner occupied co-borrower.
This is GREAT NEWS for folks who are in a situation, perhaps, where the person living in the home is in Graduate School. You know that you are going to get a job making more money – but you are on a Stipend, and that income won’t qualify you to buy a house that meets your needs! The BEST use of this program, however, is in a situation where children are buying a home for their parents to live in – when the parents do not qualify for the home on their own.
Freddie Mac Non-Occupying Co-Borrower Loan
Occupancy: Primary residence only, at least one borrower on the note must occupy the residence within sixty days of closing.
Credit Scores: A minimum credit score of 660 is required and all borrowers must have at least 2 credit scores.
Debt to Income Ratios: Maximum DTI is 45.000%, UNLESS it’s a situation where children are purchasing the house for a parent, then there is an exception.
Occupant Borrower Contribution:
When a Mortgage includes a non-occupying Borrower, and the loan-to-value (LTV) ratio is greater than 80%, the occupant Borrower must make the first 3% down payment from the occupant Borrower funds. Funds that are owned jointly by the occupant Borrower and the non-occupying Borrower are considered the funds of the occupant Borrower.
How we calculate the Monthly payments on revolving or open-end accounts, regardless of the balance: In the absence of a monthly payment on the credit report or direct verification, 5% of the outstanding balance is considered to be the required monthly payment. Monthly payments on open-end accounts (accounts requiring the balance to be paid in full monthly) are not required to be included in the monthly debt payment if the borrower has sufficient verified funds to pay off the outstanding account balance. The funds must be in addition to any funds required for down payment, closing costs, financing costs, pre-paids/escrows or reserves, as applicable.
For purchase transactions, document the source of funds for any single deposit exceeding 50% of the total monthly qualifying income for the mortgage if the deposit is needed to meet borrower funds and/or required reserves. When a deposit is not documented and is not needed for borrower funds/reserves, reduce the funds used for qualifying purposes by the amount of the unverified deposit. For Loan Prospector mortgages, enter the reduced amount of the asset into Loan Prospector.
Reserves: The amount of money you must have documented after all of your down payment and closing costs are paid. Reserves could be more than the typical 2 months, and will be determined by overlays from the PMI companies. 3 months seems to be the most we are seeing.
Property Restrictions:
Eligible Properties: Single family detached and attached, condominiums.
Ineligible Properties: Manufactured, co-ops, homes with acreage exceeding 10 acres
Financed Properties: Borrowers (owner occupant and non owner occupant combined) may not own more than four financed properties, including properties owned in a partnership or LLC
FHA Home Loans have a provision that also allows family members to more easily help each other out in the home buying process. They allow family to provide gifts for down payment, closing costs and to pay debt off in order to qualify for the new home.
FHA Home Loans also have a way for family members to actually go on the mortgage loan, just like the Freddie Mac Non-Owner Occupied Mortgage Program. The FHA Home Loan program, however, will allow the underwriter to more easily consider the established credit and work history of the non-owner occupant to qualify for the mortgage. This program is commonly referred to as a FHA “kiddie condo.” It doesn’t mean that the person living in the house has to be a “kid” – nor does the property have to be a “condo” – it’s just an old FHA Loan “Industry” slang term.
The FHA provision that allows for non-occupying co-borrowers, works great for parents like us, with kids in college. We come out a LOT better owning a unit with the student, and renting it back out. We’ve done many of these types of mortgages for our friends – and most of them were NOT condo units. It’s just an industry slang term for the loan that only requires a minimal investment (less than 5% normally covers all costs), and does not require the student to be employed full-time – or have high credit score established.
The difference in the FHA program and the Freddie Mac program is that FHA does not expect the occupying borrower to meet the income requirements on their own to qualify. With the Freddie Mac Non-Owner Occupied Mortgage Program, the borrowers must make enough income, on their own to cover the mortgage payment. With the FHA non-owner occupying co-borrower income can be all of the “qualified” income. The only difference, as you will read a little further down is if children are buying a house with their owner occupant parents.
We used this program for a family that moved here and wanted their dad to live in Cary. Their mom died a few years earlier – and her illness pretty much wiped out their dad’s cash… He also didn’t have a ton of income. Using the non-owner occupied co-borrowing of the FHA loan, we were able to get Grandpa a loan in a nice ranch near their home! He could live independently – and everyone was happy!
With this newest change in the Freddie Mac Non-Owner Occupied Mortgage Program, owner occupying parents – with non-owner occupying children do not have the same income restrictions. Meaning, in this one situation, all of the income can come from the non-owner occupying borrower to qualify. We just used this in a situation where the parent had not received their first disability check yet. The reason we used the Freddie Mac Non-Owner Occupied Mortgage Program over the FHA Loan that’s just like it is because the PMI Mortgage Insurance Rates were cheaper.
Remember, these programs works great if INCOME is the issue, not credit. If the reason you can’t qualify is due to poor credit ratings – a co-signor is, unfortunately not going to help. This is also a really great home loan program for single parents, who need some interim help!
Do you have more questions about the newest requirements for Freddie Mac Non-Owner Occupied Mortgage Program, or the FHA non-owner occupied mortgage? Leave a comment below, I try to answer all questions, or call us 919 649 5058.
If you have questions about qualifying for a Freddie Mac Non-Owner Occupied Mortgage Program or the first time home buyer program in NC, please call Steve and Eleanor Thorne 919 649 5058, we close many loans every month for folks who need to work on their credit, or have little money to put down on a home, or need information about home loans for single parents – and we love to help!
This stuff is so confusing. I was anticipating getting a Freddie Mac loan and using my parents as nonoccupant co borrowers. My income isnt the problem its my student loans that drag my DTI ratio too high. I was planning on using my parents income (very little debt) to reduce the DTI. Im a little concerned that I have to “pass” these individual thresholds. For example, you say “With the Freddie Mac Non-Owner Occupied Mortgage Program, the borrowers must make enough income, on their own to cover the mortgage payment. ” So am I out of luck, because my DTI is too high without adding my parents. Im not understanding, if the borrower can do it all on their own then why bother with a co borrower at all?
Josh, dude, you have to know that you sound just like my son – and I giggled when I read this. YES! It does seem confusing. The GOOD NEWS (which I will be updating in a few days) is that Freddie came out with new guidelines that start on August 1st. WITH THOSE CHANGES, they are counting HALF as much for deferred Student Loan debt.
It “reads” really complicated. You probably didn’t go to school to be a mortgage lender (nobody else did either), so the best thing to do is to CALL us (or another lender) who actually works with First Time Home Buyers. I run into this so often. There’s no information on this site about buying a house listed at $890,000. Because those folks are just not our “focus” / client. We “specialize” in programs for First Time Home Buyers. If you are not near NC – LMK and I’ll refer you to someone who understands these programs. ONE BIG CLUE – ask the Loan Officer how they treat IBR payments. If thy say HUGH? Keep moving on to the next guy. Call us at 919 649 5058 – we work nights and weekends