Co-Borrowng Debt to Income Ratio for pre-approval?

Question

Hello BP Community!

Long story short, I am looking into my first investment property (a house hack), and will be likely co-borrowing because I am in school and do not have enough income to qualify for the loan myself. My question is: when I / we go to get pre-approved for a loan and they look at the debt to income ratio, will the lender (a bank) look at our combined debt to income ratio? Or only the other party? I guess I am just a bit confused on how this process works.

Thanks!

Isaac Pyle · Answer

Awesome, thanks for letting me know! Looks like that is probably the route I will end up going then. Back to the original question too, would you look at combined debt to income ratio of both co-borrowers? Or only the other party with a better debt to income?

Thanks again!

Chris Mason · Answer

Yup, correct.

Isaac Pyle · Answer

@Chris Mason Ah, I see. Thanks for the clarification! So just so I am on the same page: If I were to instead buy a SFH and rent out bedrooms, would this no longer be an issue?

Chris Mason · Answer

I did a quick scan, both those websites don't mention unit count. Meaning they are talking about SFRs. Throw "duplex" or "fourplex" into your search string and you will start to read stories of preapproved borrowers with non-occ coborrowers putting 3.5% down who were denied at the last minute. I also can't control the sum total of what is to be found on google. :)

Isaac Pyle · Answer

@Chris Mason I have seen many places online that seem to think it is not an issue to co-borrow on a regular FHA loan..

https://thelendersnetwork.com/non-occupying-co-borrower-mortgage-loan/

https://themortgagereports.com/ask/285/parent-with-current-loan-borrow-occupant-for-childs-fha-loan

Am I just reading these wrong? Or missing something entirely?

Chris Mason · Answer

Disregard this post if you're putting 20% to 25% down.

The two big low down payment 2-4 unit options, Home Possible and FHA, are not coborrower friendly. For 2-4 unit: you can have the coborrower, or the 3.5% to 5% down, but not both.

Good news is rental income from what you are buying can help. Super rough ballpark: Each $1500/mo chunk of rent yields $75k buying power.