Different interest rate with co-signers?

Question

Hey BP!

I have a question: I bought my primary residence in September 2018, and needed to have my parents co-sign on the loan because I didn’t have 2 years of work history in my current industry.

I had to switch mortgage officers midway through the contingency period because the first one couldn’t get it financed. So I’m thankful that we are in the house at all.

But my rate ended up being 4.875% on a 20% down, 30-year fixed. The loan balance was just over $590k, so it didn’t qualify as a traditional qualified loan.

Fico scores are 750+ all around.

My question: if I refi that loan right now, with a lender that will accept my 1.5 years of work history, but still using a co-signer for DTI reasons, would I be able to get the quoted 4% rates that are in the market right now? Or would I get stuck with a higher rate again?

Thanks!

Sean

Sean McCluskey · Answer

@Chris Mason ok fair enough. So I imagine it would be better to close on my 1st mortgage Refi, and then go with a credit union HELOC, to get best pricing?

It seems like HELOCS allow a higher DTI, (perhaps up to 50%?), but is it possible to have co-signers in one of those the same way as with a first mortgage?

Do HELOC lenders ever make you do things like pay off a car loan, to get the DTI down, and make the deal work?

Andrew Postell · Answer

@Sean McCluskey Chris has some good pointers above.  I think that this is so specific to your profile that it would be hard for someone to quote loan parameters to you without actually running a prequalification.  My first inclination it to review the "work history" part of your scenario....does that mean your pay type is different? (commission vs. salary) Just changing an industry usually isn't a big deal unless your compensation type changed too.  I'm making some general statements here so there are exceptions to this.  Again, a lot to this of course so try to find someone that can give you some real guidance here on your income and see if there's a good solution.  @Chris Mason would be a good person to lean on.  Good luck!

Sean McCluskey · Answer

@Chris Mason awesome, thanks Chris!

Chris Mason · Answer

Yes to all, up to the specific HELOC lender, there's no Fannie Mae-equivalent, so they all make their own rules.

Sean McCluskey · Answer

@Andrew Postell thanks!

My work history was being self employed for 2.5 years overseas after business school, doing real estate development, but I didn’t take a W2 income. So the first banks’ underwriter didn’t want to take the related USA W2 experience from 10/2017 onwards. The second lender was able to take my experience, but made a little money by giving a higher rate on the loan. I was cool with that because they closed in about 2-3 weeks on short notice.

Now that I have been W2 since 10/2017, I’m hoping that more lenders will be willing to take my work exp.

Chris Mason · Answer

Piggyback HELOC at the point of & concurrent with closing on the purchase without a rate bump? Nope, that 'hit' comes directly from Fannie Mae and Freddie Mac. Only way to not pass that 'hit' onto you would be for a lender to lose money on the loan.

Sean McCluskey · Answer

@Chris Mason thanks for your reply and this info. It’s good to know that there is no structural reason that I would need to pay extra on the rate.

Now I just need to find someone who will give me that 1 in 50 loan! Haha

Is it ever possible to get those low advertised rates, and add on a piggyback HELOC? I’d like to access some of this locked up California equity...

Chris Mason · Answer

There are a few specific loan programs that both a) have great rates and b) don't work with non-occupant cosigners, but it doesn't sound like you'd be in that bucket.

So there shouldn't be any rate bump for non-occ cosigner, but not all lenders will work with anything slightly out of the box. Most of the rock bottom "for advertising purposes" stuff you see online has VERY conservative assumptions, with everything being 100% vanilla, which basically means only 1 in 50 can get what they advertise. And they might lose money on that 1 in 50 since they wanted to put the best rate out there possible, made up for with profit from the 49 out of 50.

Internet advertising for mortgage interest rates is just a race to bottom, who can skirt the "Truth in Lending Act" the best? If they had a rule that said "at least 10% of your clients must actually qualify for what you advertise," it would be a different world, but what do I know.

Different interest rate with co-signers?

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