Buying a Home You Will Live In With a Non-Occupant Borrower? Know the 95% LTV Rule
If you are buying a home you will live in, and someone who will not live there is helping you qualify, this rule decides how much you need down. I am Jason Sharon, a licensed mortgage broker, and I want to walk you through it using Dennis, a fictional buyer near Hinesville, GA. Dennis is an illustrative example of a situation that comes up often, not a real client.
Meet Dennis
Dennis is buying a home he will live in as his primary residence. On his own, he would like some help getting the file across the line, and a family member has offered to go on the loan. That family member will not live in the home. They are simply willing to help Dennis qualify.
Dennis assumes this is a yes-or-no question. Either the lender lets a helper on the loan or they do not. If the answer is yes, he figures the rest of the deal stays the same, including how much he needs to bring.
What the Selling Guide actually says
The conventional rule lives in the Fannie Mae Selling Guide, section B2-2-04, Non-Occupant Borrowers. Here is the text:
A non-occupant borrower is permitted on a principal residence transaction. The maximum LTV is limited to 95% when a non-occupant borrower is on the loan.
There are two parts to that. First, the good news: a non-occupant borrower is permitted. Dennis can have his family member on the loan because he is buying a principal residence, which means a home he will live in. Second, the limit: the maximum LTV is limited to 95% when that non-occupant borrower is on the loan.
What 95% LTV means in plain terms
LTV stands for loan-to-value. It compares the amount you borrow to the value of the home. A maximum LTV of 95% means the loan can be no more than 95% of that value, and everything beyond that has to come from the buyer. So adding a non-occupant borrower does not remove the need for the buyer to bring money to the purchase. It sets a ceiling on how much can be borrowed.
What most people get wrong
Most buyers hear that a co-signer or a family helper can make a loan work, and they stop there. They do not hear that bringing in a non-occupant borrower on a conventional loan comes with a cap on the loan amount. That is the piece that can surprise a buyer late in the process, when they have already picked a home and set a budget.
The fix is simple. Get the cap on the table before you make an offer, not after.
The question to ask your lender
Here is what Dennis does. He asks his lender:
"If I add a non-occupant borrower on this conventional loan, what is the maximum LTV, and how much do I need to bring on this purchase price?"
Then he asks the lender to cite Selling Guide B2-2-04. That does two things. It gets a clear answer tied to his actual purchase price, and it makes sure everyone is working from the same written rule instead of a rule of thumb.
With that answer, Dennis can plan his cash around the ceiling, talk to his family member about what they are signing up for, and shop with a realistic picture of what he needs to bring.
Your next step
If you are planning to buy a primary residence and a family member or other helper who will not live in the home is going to be on a conventional loan, use the question above on your next lender call. Every file is different, and there may be other requirements for a non-occupant borrower, so confirm the details for your specific situation.
If you want help, call me at 843-LOW-RATE. I find the path.
Home Loans Inc - Jason Sharon, Mortgage Broker. Company NMLS #1728740, Jason Sharon NMLS #1281448. Equal Housing Opportunity.
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