The Complete Guide to VA Loan Co-Borrowers

Purchasing a home is one of the most exciting and meaningful events in a person’s life For veterans who have served our country, VA loans offer a great opportunity to buy a house with favorable terms like no down payment and no private mortgage insurance Many veterans utilize VA loans together with a co-borrower, which opens up possibilities but also requires an understanding of VA guidelines. In this comprehensive guide, we will explore everything you need to know about co-borrowers and VA home loans.

What is a Co-Borrower?

A co-borrower is someone who applies for and receives a mortgage loan together with the primary borrower. Both borrowers’ names will be listed on the mortgage and deed of title for the home.

Co-borrowers have equal rights and responsibilities when it comes to the mortgage. Both parties’ income and debts are considered during the application process. If one borrower defaults, it impacts both borrowers’ credit.

There are many good reasons to apply for a mortgage with a co-borrower:

• Combine Incomes: Co-borrowers can combine their incomes to qualify for a larger loan amount and to make payments more affordable.

• Build Credit: Adding someone with excellent credit as a co-borrower can help offset any credit challenges the primary borrower has.

• Share Financial Responsibility: Co-borrowers split costs like the down payment and share monthly mortgage payments.

• Add Stability: In case of job loss or income disruption, having two borrowers provides more security.

VA Loan Co-Borrower Rules and Guidelines

The Department of Veterans Affairs has specific requirements when it comes to co-borrowers for VA loans:

• Co-borrowers must occupy the home being purchased and intend to use it as their primary residence.

• All co-borrowers must meet VA underwriting standards for credit, income, assets, and overall eligibility.

• Spouses of veterans are eligible co-borrowers regardless of whether they are also veterans.

• Non-married co-borrowers can be eligible if they are also veterans with home loan entitlement.

• Non-veteran, non-spouse co-borrowers turn VA loans into “joint loans” which have different terms.

Joint loans require a down payment and do not receive the full VA guaranty. But the VA does not prohibit them as long as underwriting guidelines are met.

Common VA Loan Co-Borrower Scenarios

There are several typical situations where co-borrowers are involved with VA loans:

Married Veteran Couples

For married veterans, the options are fairly straightforward. Both spouses can apply as co-borrowers. If both have VA entitlement, they can combine entitlement or use one spouse’s entitlement. Using joint entitlement often allows larger loan amounts.

Unmarried Veteran Couples

Unmarried veteran couples have the same options as married couples. As long as both veterans have entitlement, they can apply as co-borrowers on a VA loan with no down payment.

Veteran with Non-Veteran Spouse

A veteran can apply with a non-veteran spouse as long as the spouse occupies the home. The spouse’s income will be counted to qualify and the veteran’s entitlement is used.

Veteran with Girlfriend/Boyfriend

If a veteran wishes to apply with an unmarried, non-veteran partner, this is considered a joint loan. The VA will only guarantee the veteran’s portion, so a down payment is typically required.

Veteran with Parent

Likewise, if a parent wants to co-borrow with a veteran child, this is a joint loan situation requiring a down payment down. Some lenders may not allow non-spouse co-borrowers.

Divorced Co-Borrowers

If co-borrowers later divorce, the spouse who is not a veteran can’t retain the VA loan. They either must refinance under their own name or sell the home.

Pros and Cons of VA Loan Co-Borrowers

Co-borrowing on a VA loan has both advantages and potential drawbacks:

Pros

• Higher loan qualification if co-borrower has better credit score or income
• Ability to buy more expensive houses within VA loan limits
• Shared financial responsibility between co-borrowers
• Possible to combine VA entitlement for higher VA guaranty

Cons

• Both co-borrowers equally responsible for making payments
• Hurts qualification if co-borrower has poor credit or high debt
• Co-borrowers must agree on choice of home
• Home ownership headaches if relationship sours
• Joint loans require down payment impacting VA 0% down benefit

Tips for Getting Approved with a Co-borrower

If you plan to apply for a VA loan with a co-borrower, keep these tips in mind:

• Seek pre-approval together so you understand your joint qualification.

• Ensure debts and assets are accurately documented for both borrowers.

• Check credit reports and scores for both applicants early. Address any issues.

• Determine if you want to use joint or individual VA entitlement.

• Research lenders open to non-spouse co-borrowers if needed.

• Save for a 10-12.5% down payment in case a joint loan is required.

• Seek guidance from a VA loan specialist to pick the optimal approach.

Alternatives to Co-Borrowers

While co-borrowers are very common, there are other options veterans might consider:

• Have spouse only apply: If a spouse has solid income/credit, they may qualify on their own using veteran’s entitlement.

• Improve your qualification: Take time to pay down debts or improve credit to qualify individually.

• Use gift funds: Receiving gift money from family for the down payment avoids needing a co-borrower.

• Get a guarantor: A guarantor signs the loan but isn’t responsible for mortgage payments.

• Rent instead: If you don’t qualify now, renting and saving for 1-2 years can improve your application.

The Key to Success with Co-Borrowers

Applying for a mortgage loan with a co-borrower on a VA loan can be a great collaboration. Two incomes, shared responsibility, and combined VA entitlement open doors to homeownership. Just be sure all co-borrowers occupy the home, meet VA underwriting standards, and understand guidelines for joint loans. Seek counsel from VA loan specialists and choose lenders open to your particular co-borrower scenario. With proper preparation, teamwork with a co-borrower can help your dream of owning a home finally become reality.