Non Occupying Borrower Overlay HELP

[Hank Powell]

I am a non occupying coborrower, on a rate in term refi, attempting to purchase my first home.

The issue I am running into is lenders having an overlay requiring 12 months of payment receipts in order to dismiss this debt from my DTI.

I can provide written documentation that the occupying coborrower has taken responsibility for this debt.

I am looking for a lender that will signed documentation and payment receipts from the occupying coborrower proving that they are assuming the financial responsibility of the loan.

Can someone put me in touch with a lender that will lend based off this information?

Thank You!

[Daniel Hennek]

Originally posted by @Hank Powell:

I am a non occupying coborrower, on a rate in term refi, attempting to purchase my first home.

The issue I am running into is lenders having an overlay requiring 12 months of payment receipts in order to dismiss this debt from my DTI.

I can provide written documentation that the occupying coborrower has taken responsibility for this debt.

I am looking for a lender that will signed documentation and payment receipts from the occupying coborrower proving that they are assuming the financial responsibility of the loan.

Can someone put me in touch with a lender that will lend based off this information?

Thank You!

The word "overlay" is not used to describe what you are talking about. An overlay is an additional guideline that a lender has imposed on top of Fannie/Freddie Guidelines, or USDA/FHA/VA guidelines. Common overlays for FHA loans are minimum FICO 620 and now with COVID there are lots of additional overlays. Removing a debt "paid by another" from your debt ratio by showing 12 months cancelled checks is NOT an overlay. That is a guideline for all lenders if they are doing conventional, FHA, VA, or USDA loans because it's in the actual guidelines from each agency.

12 months cancelled checks or bank statements IS the "written evidence".  You said you can provide written evidence, what can you provide?  I'm guessing it hasn't been 12 months yet and that's your problem?  You can't just decide what documentation is acceptable to provide, the lender tells you what is acceptable.

If your co-borrower has not paid on the debt for at least 12 months then per the guidelines a lender cannot remove it from your DTI. Agency guidelines state that a "debt paid by another" cannot be removed from DTI unless you can provide proof it has been paid by another for 12 months and there are no late payments in the last 12 months. You must document the 12 months payments by providing cancelled checks or 12 months bank statements from your co-borrower so the underwriter can verify a 12 month payment history by the other party.

So, the way you're asking these questions isn't quite right. Lenders will absolutely accept "payment receipts and documentation proving the co-borrower is paying". But they won't just accept 2 months or 6 months. They have to document and demonstrate that the debt they are removing from DTI is likely to be paid in the future by the other party. With a short time frame there is not enough history to "demonstrate" the likeliness of that debt being paid by another. The 12 months is required to demonstrate stability and frankly is a short time considering the implications. Even many portfolio and private money mortgages will require 12 months proof that another party is paying to remove a debt from DTI.

The loan officer who worked this rate/term refinance for your co-borrower should have explained the implications to you with regards to future credit applications.  The person you co-signed for has a house with a nice low rate because of you, and you're stuck waiting and holding the bag.  Getting a portfolio or private loan that would allow you to move forward prior to having 12 months documented payments is going to mean a much higher interest rate.  You're probably better off waiting for the 12 months.