B2-2-04, Guarantors, Co-Signers, or Non-Occupant Borrowers on the Subject Transaction (09/02/2020)

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;

• do not have an interest in the property sales transaction, such as the property seller, the builder, or the real estate agent; and

• meet the requirements in  B2-2-01, General Borrower Eligibility RequirementsB2-2-01, General Borrower Eligibility Requirements, except for the provisions related to establishing an ownership interest in the property.

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);

• do not have an interest in the property sales transaction, such as the property seller, the builder, or the real estate agent; and

• meet the requirements in  B2-2-01, General Borrower Eligibility RequirementsB2-2-01, General Borrower Eligibility Requirements, except for the provisions related to establishing an ownership interest in the property.

Note: Guarantors, co-signers, and non-occupant borrowers are permitted on purchase, limited cash-out and cash-out refinance transactions.

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 GiftsB3-4.3-04, Personal Gifts; B3-4.3-06, Grants and Lender ContributionsB3-4.3-06, Grants and Lender Contributions; and B3-4.3-08, Employer AssistanceB3-4.3-08, Employer Assistance, 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 RatiosB3-6-02, Debt-to-Income Ratios.

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.

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 their 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.