Selling Guide

Published January 31, 2017

B2-2-04: Guarantors, Co-Signers, or Non-Occupant Borrowers (08/30/2016)

This topic contains information on guarantors, co-signers, or non-occupant borrowers, including:

Definitions

Guarantors and co-signers are credit applicants who

  • do not have ownership interest in the subject property as indicated on the title;

  • sign the mortgage or deed of trust note;

  • have joint liability for the note with the borrower; and

  • do not have an interest in the property sales transaction, such as the property seller, the builder, or the real estate broker.

Non-occupant borrowers are credit applicants on a principal residence transaction who

  • do not occupy the subject property;

  • may or may not have an ownership interest in the subject property as indicated on the title;

  • sign the mortgage or deed of trust note;

  • have joint liability for the note with the borrower(s); and

  • do not have an interest in the property sales transaction, such as the property seller, the builder, or the real estate broker.

Down Payment and Qualifying Ratio Requirements for Manually Underwritten Loans

For manually underwritten loans, if the income of a guarantor, co-signer, or non-occupant borrower is used for qualifying purposes, the occupying borrower(s) must make the first 5% of the down payment from their own funds unless:

Using only the income of the occupying borrower(s) to calculate the DTI ratio, the maximum allowable DTI ratio is 43%.

Note: This policy applies even if the combined qualifying ratios for the borrower and the guarantor, co-signer, or non-occupant borrower are well below Fannie Mae’s standard qualifying ratio benchmark. Minimum credit score and reserve requirements based on the LTV ratio and combined qualifying ratios of all borrowers must be met per the Eligibility Matrix. See Section B3–5.4, Nontraditional Credit History, for additional requirements that apply when the transaction includes a borrower who does not have a credit score.

For additional information, see B3-6-02, Debt-to-Income Ratios.

LTV Ratio Requirements for Manually Underwritten Loans

For manually underwritten loans, if the income of a guarantor, co-signer, or co-borrower is used for qualifying purposes, and that guarantor, co-signer, or co-borrower will not occupy the subject property, the maximum LTV, CLTV, and HCLTV ratio may not exceed 90% (unless a Community Seconds is part of the transaction, in which case the CLTV ratio may not exceed 105% or the maximum stated in the Eligibility Matrix for ARM loans and loans secured by manufactured housing).

LTV Ratio Requirements for Loan Casefiles Underwritten through DU

DU analyzes the risk factors in the loan casefile for all borrowers on the mortgage loan. Regardless of whether an individual borrower will be occupying the property as his or her principal residence, DU will consider the income, assets, liabilities, and credit of that borrower.

For DU loan casefiles, if the income of a guarantor, co-signer, or co-borrower is used for qualifying purposes, and that guarantor, co-signer, or co-borrower will not occupy the subject property, the maximum LTV, CLTV, and HCLTV ratio may not exceed 95% (unless a Community Seconds is part of the transaction, in which case the CLTV ratio may not exceed 105% or the maximum stated in the Eligibility Matrix for ARM loans and loans secured by manufactured housing).

Related Announcements

The table below provides references to the Announcements that have been issued that are related to this topic.

Announcements Issue Date
Announcement SEL-2016–07 August 30, 2016
Announcement SEL-2015–10 September 29, 2015
Announcement SEL-2014–07 June 24, 2014
Announcement SEL-2013–07 September 24, 2013
Announcement SEL-2012–07 August 21, 2012
Announcement SEL-2011–06 July 26, 2011
Announcement SEL-2010–13 September 20, 2010