Adding a co-borrower to a home equity line of credit can strengthen a loan application, but it also raises an important question: Does the co-borrower need to be included on the property’s title? The answer often depends on whether that person will occupy the property. Occupancy can determine whether a co-borrower must be on the loan, the title, or both.
The Difference Between Being on the Loan and Being on Title
Being named on a mortgage loan is not the same as holding title to the property. These distinctions matter most when a HELOC involves spouses, relatives, business partners, or other co-borrowers who do not live in the home.
- Being on the loan means the person is financially responsible for repaying the debt.
- Being on title means the person has an ownership interest in the property.
- Signing the security instrument allows the lender to establish its lien against the property, even when a titleholder is not personally responsible for repaying the loan.
Occupying Co-Borrowers
An occupying co-borrower is someone who applies for the HELOC and lives in the property. Because the individual lives in the property and contributes to the loan qualification, that person is both financially responsible for the debt and an owner of the real estate securing it. Under the applicable program guidelines, an occupying co-borrower must generally be one of these.
- Included on the loan
- Included on the property’s title
Non-Occupant Co-Borrowers
A non-occupant co-borrower is financially responsible for the loan but does not live in the subject property. A borrower may add a non-occupant co-borrower when they need additional income or financial strength to qualify. However, not every HELOC program permits this arrangement, and the requirements can vary by lender, state, property type, and occupancy. A person should understand the consequences before agreeing to become a non-occupant co-borrower. They can be responsible for the entire debt even when they do not own the property securing the loan.
Under many HELOC programs, a non-occupant co-borrower:
- Must be included on the loan
- Is not necessarily required to be on title
- Has their income, credit, debts, and assets evaluated during underwriting
- Accepts responsibility for repayment even without an ownership interest in the property
What Is a Non-Purchasing Entity?
A person or entity that holds an ownership interest in the property but is not included as a borrower on the loan may be classified under the applicable program as a Non-Purchasing Entity, or NPE. The NPE signs the security instrument because the lender needs every applicable owner to acknowledge and consent to the lien being placed against the property. Although an NPE may not be personally responsible for HELOC payments, its ownership interest remains subject to the lender’s security interest.
An NPE:
- Is included on the property’s title
- Is not personally obligated on the loan
- Does not sign the promissory note as a borrower
- Must generally sign the mortgage, deed of trust, or other security instrument at closing
Special Rules for Texas Primary Residences
Texas home equity loans and HELOCs secured by primary residences are governed by Article XVI, Section 50(a)(6) of the Texas Constitution and have requirements that differ from those in other states. Texas also imposes special timing, documentation, equity, and homestead requirements on these transactions. The Texas Office of Consumer Credit Commissioner notes that Section 50(a)(6) home equity loans are subject to state-specific safeguards, including a required waiting period before closing. Because Texas homestead rules are highly specific, borrowers should have the title and occupancy structure reviewed early rather than waiting until closing.
- Non-occupant co-borrowers are not permitted on Texas 50(a)(6) HELOCs
- Non-Purchasing Entity eligibility may be subject to additional restrictions
- All owners and spouses may have specific signing requirements
- Additional disclosures and closing procedures apply
Why Occupancy Must Be Established Early
Discuss whether each borrower will occupy the property at the start of the application. Waiting until the title review or closing to address these issues can create unnecessary delays.
- Title requirements
- Co-borrower eligibility
- Available loan programs
- Income used for qualification
- Pricing and loan-to-value limits
- Required closing documents
- State-specific legal requirements
Review the Complete HELOC Scenario
A co-borrower’s role depends on more than whether you need their income. Occupancy, ownership, marital status, state law, and the selected HELOC program can all affect how the transaction must be structured.
- An occupying co-borrower is on both the loan and title
- A non-occupant co-borrower may be on the loan without being on title
- A titleholder who is not on the loan may be treated as an NPE and required to sign the security instrument
- Texas 50(a)(6) HELOCs do not permit non-occupant co-borrowers under the applicable program and may impose additional NPE restrictions
Contact us to review the proposed borrowers, occupancy, titleholders, property, and state before beginning the application.
