Mortgages After 2008 Real Estate Meltdown

Dated: 08/08/2017

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Non Occupant Co Borrowers And FHA Loans

Are You Being Asked To Be A Non -Occupant Co-Borrower?

There are thousands of folks who can afford a home but cannot qualify for a residential mortgage loan because they cannot prove their income.  The mortgage industry has gone through a total restructure after the real estate, credit, and financial meltdown of 2008.  Thousands of mortgage lenders went out of business, mortgage products like no doc or stated income products have become extinct, and over half of this country’s mortgage loan originators have quit the business due to the new SAFE ACT created by Congress where all mortgage loan originators need to go through federal and state testing, federal and state background investigations, and every mortgage loan originators need to go through credit checks where they need to explain all derogatory items on their credit reports including bankruptcies, foreclosures, and collection accounts.  State mortgage regulators can deny a mortgage loan originator their mortgage license just for having bad credit due to financial irresponsibility.  Those employed by FDIC banks and credit unions are exempt from this rule.

Mortgages After 2008 Real Estate Meltdown

Fortunately, FHA loan programs have gotten more lenient after the 2008 mortgage meltdown.  Thanks to FHA, those folks who became victims of the 2008 financial credit and mortgage collapse and who had to file bankruptcy or had gone through a foreclosure  can now have a second chance in being homeowners.  FHA fully understands that the financial collapse of 2008 hurt millions of folks and that these folks credit got ruined due to extenuating circumstances.  Bankruptcy and foreclosure rates hit a historical peak record.  Prior to 2008, I did not know of anyone who I knew personally who had a bankruptcy or foreclosure.  Now, I know hundreds of friends, aquaintances, and family member who have gone through a bankruptcy, foreclosure, deed in lieu of foreclosure, or short sale or a combination of above.  Me, myself personally, have lost all of my commercial properties as well as my personal residence through foreclosure as well so I fully understand home buyers who had prior financial difficulties and had to file bankruptcy or had to go through foreclosure and that is why I am in the mortgage business to be able to help these hard working people and families.

Income, Credit, Assets In Mortgage Qualification

Today, as long as you have documented income, you will qualify for a residential mortgage loan with FHA.  Bad credit, no credit, prior bankruptcy, foreclosure, deed in lieu of foreclosure, unsatisfied collection accounts, prior bad payment history are not a problem.  It is not whether you will qualify for a mortgage, it is when you can qualify for a mortgage if you have bad credit.  One important thing is that most mortgage lenders want to see a 12 month timely payment history.  Old collection accounts with open credit balances do not have to be paid off.  Medical collections are exempt and mortgage lenders treat medical collections differently than non-medical collections.  As long as you have documented income and can be verified by the IRS, you will be a homeowner again or if you are a first time home buyer, you will be a first time homeowner.

Waiting Period After Bankruptcy And Foreclosure To Qualify For Home Loan

There are certain mandatory waiting periods if you had a prior bankruptcy or foreclosure:  There is a two year waiting period after bankruptcy and a three year mandatory waiting period after foreclosure ( the time clock with foreclosure and deed in lieu of foreclosure starts from the date the deed of the home was transferred out of your name into the mortgage lender’s name or the date of the sheriff’s sale and there is a three year waiting period after the date of the short sale to qualify for a residential mortgage loan.  Mortgage lenders do want to see re-established credit after a bankruptcy, foreclosure, deed in lieu of foreclosure, and short sale.  How can you re-establish your credit when you just went through a bankruptcy, foreclosure, deed in lieu of foreclosure, short sale and your credit is crap?  The best and fastest way of re-establishing your credit is by getting several secured credit cards.  3 to 5 secured credit cards will do the trick.  Never be late on these secured credit cards because even though you have a deposit with the amount of the credit limit, these secured credit cards will report you late if you are ever late on any monthly payments.  Remember if you are going to be irresponsible in religiously making your monthly payments,  getting secured credit cards will do more damage than good.

To sum it up, as long as you have income, you will qualify for a residential mortgage loan.  However, you can have the highest credit scores possible but if you cannot prove your income and work for cash money or write everything off on your income tax returns and do not show income, you will have a problem getting any residential mortgage loan.  Income is the Golden Ticket in getting a residential mortgage loan today.

Solutions To Those Who Do Not Have Proof Of Income

The great news for those who have no proof of income is that FHA allows mortgage loan borrowers who do not have income or have proof of income to have a family member or relative to become their non-occupant co-borrower.  FHA is the only mortgage loan program that allow for non-occupant co-borrower to be added to the mortgage loan.  Non-occupant co-borrower or co-borrowers are added on the mortgage loan note but are not on title.  A FHA mortgage loan borrower can have more than one non-occupant co-borrower.  A non-occupant co-borrower needs to be related to the main borrower by either marriage, blood, or law.  There are a few FHA mortgage lenders that will allow very close friends of the borrower to be non-occupant co-borrowers.  The friend and the borrower needs to prove that they have known each other for at least five years.  The non-occupant co-borrower’s income will be used to qualify for the mortgage loan and mortgage loan underwriters will scrutinize that the debt to income ratios are in line for both the non-occupant co-borrower’s main property as well as the borrower’s new purchase.  The non-occupant co-borrower’s credit scores will be taken into effect.  Mortgage lenders will use the lower of either the borrower’s or non-occupant co-borrower credit scores.  If the non-occupant co-borrower has lower credit scores than the main borrower’s, then the non-occupant co-borrower’s credit scores will be used.  If the borrower’s credit scores are lower than the non-occupant co-borrower’s credit scores, then the borrower’s credit scores will be used.

If Non-Occupant Co-Borrower Does Not Own A Home, Can Co-Signing Ruin Chances Of Them Getting A Mortgage Later?

The answer to the above question is yes and no.  If you become a non-occupant co-borrower and you are currently renting and want to be a homeowner in the near future and need to qualify for your own mortgage loan, then you need to wait 12 months in order for the co-signed mortgage loan not to count towards your debt to income ratios.  The co-signed mortgage loan will not count towards your debt to income ratios as long as you can provide your new mortgage lender that you are not responsible for the co-signed mortgage loan and that someone else is making the payments.  This is done by providing 12 months  cancelled checks from the person who is actually making the mortgage payments.  By doing this, its like the mortgage payments do not exist and will not count towards your debt to income qualifications.

Risks With Being A Co-Borrower

There are more risks in becoming a non-occupant co-borrower.  The only reward to being a non-occupant co-borrower is that you get the reward of helping a family member or relative the chance of becoming a homeowner because without your income, they would otherwise would not have qualified for a mortgage loan and the chances are that they will still be renting.  However, if the main borrower is late on their monthly mortgage payments, it will really adversely affect your credit.  If the main borrower forecloses on their home, you are also responsible for the deficit judgment if there is one and if you have a foreclosure, deed in lieu of foreclosure, or short sale on your record, it will affect the chances of you getting a new mortgage for at least three years from the date the deed is transferred out of the borrower’s name into the mortgage lender’s name or from the date of the short sale.  Prior to committing to being a non-occupant co-borrower, you need to be sure that the person you are co-signing for is a financially responsible person and that their income and job is secured.

If you are a home buyer with no or little income in Illinois, Florida, California, Washington, Indiana, or Wisconsin and need a mortgage lender with little or no overlays, please contact me at 941-444-0010 My lender partner will be glad to help.

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