How are debts paid by others handled on a mortgage application? Sometimes when someone applies for a mortgage with me, they mention they have a debt paid by a parent. They may have a school loan that a parent pays. Or people may tell me they co-signed for someone else’s mortgage, but they do not make the payments.
If a mortgage borrower can document that someone else has paid a debt on time for 12 months, that debt won’t count against their own debt ratios.
But how is this documented to exclude these sorts of debts from a borrower’s Debt-To-Income ratio? The lender must obtain the most recent 12 months’ canceled checks or bank statements. These would be obtained from the party making the payments to document a 12-month payment history with no delinquent payments.
If only a portion of the debt is paid by another party, can that portion be excluded in the DTI ratio? No. This is an all or nothing situation. The entire monthly payment must be paid by the other party, not just part of it.
Also, the other party who is actually paying the debt cannot be an interested party to the mortgage transaction.
For mortgage debts paid by another, the following additional requirements must be met:
- the party making the payments must be obligated on the mortgage debt,
- there are no delinquencies in the most recent 12 months, and
- the borrower is not using rental income from the applicable property to qualify.
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