Are we able to count the income of a guarantor on the loan to qualify them according to Ability to Repay? I have searched and can only find information saying you don’t have to count the debts of the guarantor. We have a customer who does not qualify on his own for a home purchase loan, but has two guarantors who do qualify. We originally asked for guarantors because he didn’t have credit history and I didn’t think we were going to count their income, but now the borrower comes up short. I guess I am not sure if we do count it, how that would work? I can’t really aggregate it with the borrower because they don’t live in the same household? And feel like for ability to repay reasons, they aren’t going to be the ones actually paying the bills…any thoughts?
If the consumer can’t repay the loan it shouldn’t be made.
1026.43(c) Repayment ability. (1) General requirement. A creditor shall not make a loan that is a covered transaction unless the creditor makes a reasonable and good faith determination at or before consummation that the consumer will have a reasonable ability to repay the loan according to its terms.
If you can’t qualify the loan, I recommend following your adverse action procedures. If they reapply with a co-applicant you may be able to qualify the loan under either ATR or one of the QM rules.