Excluding Debt for Underwriting

Anonymous · ‎11-29-2017

So we're closing on our house on Monday, and we purchased it with some help from a relative in the form of co-signing. It's a great place, we're very excited. We know that the mortgage payment will have some serious implications for this relative to get any credit while it remains on their report, so I plan to refinance it in a year and get the relative off the loan so they can go on their merry way. My question is this:

With regards to excluding non-mortgage debt such as student loans, other loans, and other unsecured debt, the Fannie Mae guidelines state:

"When a borrower is obligated on a non-mortgage debt - but is not the party who is 
actually repaying the debt - the lender may exclude the monthly payment from the 
borrower's recurring monthly obligations. This policy applies whether or not the other 
party is obligated on the debt, but is not applicable if the other party is an interested 
party to the subject transaction (such as the seller or realtor). Non-mortgage debts 
include installment loans, student loans, revolving accounts, lease payments, alimony, 
child support, and separate maintenance."

So my thought is that my fiance can pay my bills for 12 months, and then the debt can be excluded. My current mortgage guy told me that it has to be joint debt, but that goes contrary to the Fannie Mae documentation. I saw Freddie made some changes that will also allow for these exclusions but didn't get into the other specifics of criteria yet. My main concern with the Fannie rule above is the clause about being an interested party. The term isn't defined anywhere but is given examples such as sellers and realtors. This would be a refinance. Would my fiance be an interested party if she isn't on the loan or title but she lives there? If we got married this year, would that change things? We're talking conventional only because we're over the FHA limit for our area. Obviously the easy way to do it would be to pay off all the debt she would be making payments on, but that's not likely in the next twelve months. I can qualify myself if we can get certain debts of mine excluded. She will pay my debts from her own checking account using her own money from her job.

Anonymous · ‎11-29-2017

I can give you a perfect example to this. My car is in my dad's name only. BUT, because I've been paying the car note, the lender has calculated the debt into our DTI. If my dad had been paying my car note, the lender would know nothing about it.

So if my dad applied for a mortgage, although the car is on his credit report, it would not be counted against him because I've been making the payments since the car was purchased a year ago.

Anonymous · ‎11-29-2017

And I get that, and that's a straightforward interpretation of the rule I posted. You wouldn't be considered an "interested party" though unless you were going to live with your dad. It's the interpretation of "interested party" that gets to me. If we're married, she's obviously "interested" in what is going on, but if not, I would think it's okay, but at the same time I feel like it's "fooling" the mortgage company since she will live there and we shouldn't count my debt just because she's paying it, but since we're together it doesn't matter as long as all the bills get paid, I just happen to have her pay certain ones of mine for 12 months so we can refinance the mortgage. Wondering if anyone out there has had debt excluded since it was paid by a significant other who might chime in.

kc0039 · ‎11-30-2017

We can exclude that debt. The other party has to show that they're paying for that debt for the past 12 months from their own account. The "interested" party rule, which is that they're on the credit too, was changed at the end of July of this year.

Licensed in IL

Anonymous · ‎11-30-2017

I do note the claim about not having to also be on the debt, which is good since the debt I'm looking to exclude isn't a joint debt. The examples they gave for "Interested Party" was the seller, or the realtor, but no actual definition was given, so my concern was just that the interpreted definition of "interetested party" might carry over to someone who is living in the house. I could certainly see how someone could think that someone living there would be "interested." To cover that as well, would the person be "interested" if they were a spouse, or would that not matter as long as the mortgage and title were only in my name? Thanks!

kc0039 · ‎11-30-2017

@Anonymous wrote:
I do note the claim about not having to also be on the debt, which is good since the debt I'm looking to exclude isn't a joint debt. The examples they gave for "Interested Party" was the seller, or the realtor, but no actual definition was given, so my concern was just that the interpreted definition of "interetested party" might carry over to someone who is living in the house. I could certainly see how someone could think that someone living there would be "interested." To cover that as well, would the person be "interested" if they were a spouse, or would that not matter as long as the mortgage and title were only in my name? Thanks!

Interested party are the parties involved in the home buying process. Sellers, realtors, attorneys, you, your spouse(if they're on the contract or needs to be on title). It wouldn't matter if the mortgage and title were only in your name.

Licensed in IL