B2-2-04: Guarantors, Co-Signers, or Non-Occupant Borrowers on the Subject Transaction (06/05/2018)

© Fannie Mae Single Family Selling Guide

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:

• the LTV or CLTV ratio is less than or equal to 80%; or
• the occupying borrower is purchasing a one-unit principal residence and meets the requirements to use gifts, donated grant funds, or funds received from an employer to pay for some or all of the borrower’s minimum contribution. See B3-4.3-04, Personal Gifts (09/29/2015); B3-4.3-06, Donations From Entities (05/01/2018); and B3-4.3-08, Employer Assistance (09/29/2015), for additional information.

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 (07/25/2017).

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% where permitted in the Eligibility Matrix.

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% where permitted in the Eligibility Matrix.