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Using a Non-Occupant Co-Borrower for a Mortgage in California

Buying a home in California can be expensive. Because of this, some borrowers might have trouble qualifying for a mortgage loan on their own, based on their income level.

This is a scenario where the non-occupant co-borrower can be helpful. This is a person who adds their name to the mortgage loan but doesn’t actually live in the home. The co-borrower’s income gets counted toward the overall income, so it can help the primary borrower qualify for a loan.

In this article, we’ll look at how the non-occupant co-borrower situation works in California, and who might benefit from using this strategy.

What Is a Non-Occupant Co-Borrower in California?

A non-occupant co-borrower is a person who is listed on a mortgage loan application but is not the primary borrower and does not live in the property that’s being financed. In this scenario, the lender will consider the income, assets, and credit history for both the primary borrower and the non-occupant co-borrower.

That’s our definition. Here’s how the government-sponsored mortgage buyer Fannie Mae defines it:

“A non-occupant borrower is anyone, such as a parent, who is willing and financially able to be a borrower on the mortgage, but who will not live in the home.”

Why Use a Co-Borrower?

The main reason to have a non-occupant co-borrower is to help the primary borrower qualify for the mortgage loan. As mentioned above, the non-occupant co-borrower’s income and credit can be used to help the primary borrower meet the lender’s requirements for the loan.

For example, if the primary borrower alone has a low credit score and/or insufficient income, the a non-occupant co-borrower could help “boost” the application and increase the chances of getting approved. This is particularly true if the co-borrower has solid credit and significant income.

It’s important to note that the non-occupant co-borrower is equally responsible for repaying the mortgage loan. If the primary borrower defaults on the loan, the lender or loan servicer could pursue the non-occupant co-borrower for payment. This is why it’s important for the non-occupant co-borrower to carefully consider their decision to co-sign on a mortgage loan, and the responsibilities it brings.

Advantages: An Easier Qualification Process

We touched on the primary benefit of using a non-occupant co-borrower already. Now, let’s dig a little deeper. Here are some of the advantages it can bring:

  1. Increased chances of approval: Adding a non-occupant co-borrower to the loan application could strengthen the overall application, particularly if the co-borrower has a good credit score and financial profile. This can increase the chances of the loan being approved.
  2. Lower interest rates: If the non-occupant co-borrower has a strong credit score, it may be possible to secure a lower interest rate on the mortgage loan. This can result in significant savings over the life of the loan.
  3. Lower down payment: In some cases, having a non-occupant co-borrower may allow the borrower to make a smaller down payment on the property. This can be especially beneficial for first-time home buyers who may not have a large down payment saved up.
  4. Shared responsibility: Having a non-occupant co-borrower can help to spread the financial responsibility for the mortgage loan across multiple parties. This in term can help reduce the risk of default and ensure that the loan is repaid on time.

Who Could Benefit from This Strategy

There are several types of home buyers in California who could benefit from using a non-occupant co-borrower on a mortgage loan. Here are four common examples:

  • First-time home buyers — Some first-time home buyers in California struggle to come up with the cash needed for a down payment. They might also have insufficient income, making it difficult to qualify for a mortgage loan on their own. Having a non-occupant co-borrower with a strong credit history and stable income can help first-time buyers qualify for mortgage financing to buy a house.
  • Self-employed individuals — If you are self-employed, it can be challenging to prove your income to a lender. Using a non-occupant co-borrower who has a steady job and a regular income can help to strengthen your loan application, improving your chances of getting approved.
  • Buyers with poor credit — Generally speaking, home buyers in California need a decent credit score to qualify for a mortgage loan. But for those with a low score, a non-occupant co-borrower with a strong credit profile could help make the difference.
  • Buyers who can’t afford a large down payment — California is an expensive real estate market. Because of this, the typical down payment on a home can add up to tens of thousands of dollars. If you don’t have enough money saved for a down payment, having a non-occupant co-borrower could help. Your co-borrower can contribute money to the down payment, easing the burden.

Have questions? Located in the Bay Area, Bridgepoint Funding serves borrowers all across the Golden State. Please contact us if you have financing questions or would like to apply for a mortgage loan.

Mike Trejo

Mike Trejo is a Bay Area mortgage broker with 20+ years of knowledge and experience.

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