Can a spouse be a non-borrower household member on a HomeReady mortgage?
According to program guidelines, it is possible for a spouse to be a non-borrower household member on a HomeReady mortgage. We should emphasize that being a non-borrower household member for a mortgage is different than being a co-borrower for multiple reasons, as we outline below. In certain situations, it may improve your ability to qualify for a HomeReady mortgage if your spouse is a non-borrower household member as opposed to a co-borrower.
If you are a co-borrower, you are listed on the mortgage documents and you are legally responsible for repaying the loan. Additionally, your income and monthly debt expenses are added to the other borrower’s income and debt to determine the mortgage you can afford. If both borrowers have good incomes and relative low monthly debt expenses they can qualify for a higher loan amount as co-borrowers than they can if they apply on their own as a sole borrower.
We also should highlight that when two people apply for a mortgage as co-borrowers, the lender uses the lower credit score between the borrowers to determine if you are eligible for the loan program and to set your mortgage terms. In short, the higher your credit score, the lower your mortgage rate and vice versa.
Review our HomeReady Mortgage Guide
The minimum credit score for the HomeReady Program is 620, so as long as both applicants’ scores are above this level, you should be able to qualify for the mortgage as co-borrowers. If the score for one of the borrowers is below 620 or if a borrower has a serious credit issue such as a bankruptcy, foreclosure, default or short sale, you may not be eligible for the loan.
In this case it may be better if the spouse is included as a non-borrower household member instead of a co-borrower. A non-borrower household member is not listed on the mortgage documents, is not legally responsible for the loan and her or his credit score is not factored into your HomeReady application.
Additionally, the non-borrower household member’s income and debt are not added to your income and debt to determine the mortgage you can afford. Instead, the lender uses the non-borrower household member’s income as a "compensating factor" and applies a higher debt-to-income ratio to your application.
For example, including a non-borrower household member when you apply for a HomeReady mortgage may allow the lender to use a debt-to-income ratio of up to 50% as compared to the standard ratio of 43%. Using a higher debt-to-income ratio enables you to qualify for a higher mortgage amount.
Use our MORTGAGE QUALIFICATION CALCULATOR to determine the loan amount you can afford
The example below compares the mortgage you can afford as a sole borrower compared to the mortgage you can afford with the support of a non-borrower household member such as a spouse. Although the non-borrower household member’s income is not added to the applicant’s income, the loan the borrower can afford increases because the lender applies a higher debt-to-income ratio. This is only one example but it illustrates the benefit of having a non-borrower household member when you apply for a HomeReady Mortgage.
Case 1: Apply for Mortgage With No Non-Borrower Household Member
Applicant Income: $4,000
Applicant Debt: $400
Debt-to-Income Ratio: 43%
Mortgage Applicant Qualifies For: $220,000
Case 2: Apply for Mortgage With Non-Borrower Household Member
Applicant Income: $4,000
Applicant Debt: $400
Debt-to-Income Ratio: 50%
Mortgage Applicant Qualifies For: $265,000
The HomeReady Program is offered by approved lenders such as banks, mortgage brokers and credit unions. We recommend that you contact multiple lenders in the table below to learn more about program availability and guidelines.
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Please note that the non-borrower household member’s income does not count against the HomeReady borrower income limit, which is 80% of the area median income (AMI) where the property is located. So if your spouse makes too much money, this may be another reason for her or him to be a non-borrower household member rather than a co-borrower on the mortgage.
Ultimately, your decision to apply for the mortgage with your spouse as a non-borrower household member or a co-borrower depends on your ability to meet HomeReady Program eligibility requirements and the mortgage amount you can afford.
If you can qualify the loan amount you want without using your spouse’s income, then using your spouse as a non-borrower household member may make sense, especially if your spouse has a low credit score or significant credit issue. If you cannot qualify for the loan amount you want using only your income, then you should consider applying for the mortgage with your spouse as co-borrowers, assuming you both meet the credit score and other qualification requirements and do not exceed the HomeReady borrower income limits.
You can use the FREEandCLEAR Lender Directory to search over 3,900 lenders by loan program. For example, you can find top-rated lenders in your state that offer HomeReady mortgages.
Sources
"HomeReady Mortgage." Lender Fact Sheet. Fannie Mae, December 7 2019. Web.
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