Everything You Need to Know About VA Home Loan Co-Borrowers

Purchasing a home is an exciting yet challenging process, especially for military service members and veterans. The VA home loan program provides significant benefits like no down payment and no private mortgage insurance to help make buying a home more affordable. While VA loans offer great advantages, the lending guidelines and qualifications can still be difficult for some to meet on their own. This is where considering a co-borrower can help.

Adding a co-borrower to your VA home loan application can provide you with some distinct benefits and advantages. However, there are also important factors to consider when deciding if a co-borrower is right for your situation. In this comprehensive guide we’ll cover everything you need to know as a veteran about getting a VA home loan with a co-borrower.

What is a Co-Borrower on a VA Loan?

A co-borrower on a mortgage loan is someone who applies for the loan and whose name is on the mortgage deed right alongside the primary borrower They have equal rights to the home and share responsibility for making the monthly mortgage payments.

On a VA home loan, acceptable co-borrowers include:

• A veteran’s spouse
• Two married veterans
• Two unmarried veterans
• A veteran and non-veteran joint loan

The key requirements are that all co-borrowers must occupy the home and meet VA credit, income and other eligibility guidelines The VA allows up to 4 total borrowers on a loan

Benefits of Adding a Co-Borrower to a VA Loan

There are a few potential advantages to having a co-borrower on your VA home loan:

1. Increase Buying Power

Adding another borrower’s income to the loan application can significantly increase your home buying power. You may qualify for a larger loan amount or reduced monthly mortgage payments. This helps approve larger home purchases.

2. Offset Weaknesses

A co-borrower with a higher credit score can counterbalance your weaker credit history. Their low debt-to-income ratio can offset high DTI problems. Co-borrowers help cover each other’s weaknesses.

3. Share Financial Responsibility

Co-borrowers split the financial duty of paying the monthly mortgage. This may help make large loan payments more manageable and affordable.

4. Improve Chances of Approval

Co-borrowers can help overcome affordability issues that might otherwise lead to a loan denial. Their improved financial profile can lead to loan approval.

VA Co-Borrower Requirements

While co-borrowers provide benefits, they must still meet VA requirements:

• Credit Score: VA minimum is usually 620, but each lender sets their own score cutoff.

• Income: Co-borrowers must document stable income sources to qualify. VA has no set minimum income.

• Debt-to-Income Ratio: Total DTI for all borrowers must be 41% or lower in most cases.

• Residence History: Co-borrowers must demonstrate a willingness and ability to make monthly housing payments on time.

• Down Payment: None required on most VA loans, even with a co-borrower.

As long as all co-borrowers meet eligibility criteria, the process is relatively straightforward. All co-borrowers’ income and debts are combined to determine if the borrowers collectively qualify.

Common VA Loan Co-Borrower Scenarios

There are a few typical situations where co-borrowers come into play on VA loans:

Married Couples

Spouses are one of the most common co-borrower scenarios. Combining incomes and credit histories can help couples afford more expensive houses together. VA loans allow a veteran and civilian spouse to both be borrowers.

Family Members

Some lenders allow VA loans with non-spouse family co-borrowers like parents, siblings or children. This can help relatives jointly buy and share housing costs.

Unmarried Partners

Boyfriends, girlfriends and other unmarried partners can sometimes co-borrow on VA loans. This allows couples to buy a house together before engagement or marriage.

Multiple Veterans

When two veterans co-borrow, they can either split entitlement or use one person’s full eligibility. This maximizes the VA home loan benefit for both.

Non-Veterans

The VA allows “joint loans” with veteran and civilian co-borrowers. However, these loans require at least a partial down payment, limiting the no down payment benefit.

Pros and Cons of Co-Borrowers on VA Loans

Adding a co-borrower has advantages but also important considerations:

Pros

• Increased buying power and options
• Ability to get approved for larger loan amount
• Overcome credit weaknesses
• Share financial obligation
• Buy home sooner than otherwise possible

Cons

• Both co-borrowers liable for total mortgage debt
• Relies on other person’s continued financial health
• Short sale/foreclosure risks for both borrowers
• Ineligible co-borrowers limit VA loan benefits
• Co-borrower problems can still cause denial

Looking at both the pros and cons helps weigh if the benefits of co-borrowers outweigh the risks for your personal homebuying needs.

Steps for Getting a VA Loan With a Co-Borrower

If you determine a co-borrower fits your homebuying plans, here is an overview of what’s involved:

• Choose Co-Borrower: Select your spouse or other eligible co-borrower who will apply with you.

• Review Guidelines: Confirm co-borrower meets all minimum VA loan requirements.

• Submit Joint Application: Complete the loan application listing both borrowers’ information.

• Gather Documentation: Provide income, tax, debt and credit data for all co-borrowers.

• Underwriting Review: Loan officer will verify both borrowers meet approval criteria.

• Close Together: All co-borrowers sign final loan documents together at closing.

• Shared Responsibility: Co-borrowers both make payments and share home ownership.

Take the time upfront to ensure your co-borrower is well qualified before submitting a joint VA loan application.

Alternatives to Co-Borrowers on VA Loans

If adding a co-borrower doesn’t work for your situation, a couple alternatives exist:

Use Gift Funds

Gifts from family or grants can help cover down payments or closing costs instead of a co-borrower.

Improve Your Profile

Take time to pay down debts, increase income or build savings/reserves to qualify yourself.

Lower Purchase Price

Opt for a lower-priced home that better fits your budget with only your income.

Co-Signer Only

A co-signer provides a credit boost without being on the mortgage loan.

Individual Loan

Purchase the home in your name only based on your personal eligibility.

Look at all options to weigh the best path forward to VA homeownership.

How Co-Borrowers Impact Refinancing or Selling

What happens when you want to refinance or sell down the road? Here are key considerations with co-borrowers:

Refinancing

All co-borrowers must agree and sign for any refinance. Rates/terms are based on both borrowers’ financial profiles at time of refi.

Selling

Both co-borrowers must agree to any sale. Sales proceeds are shared equally between all borrowers.

Divorce

If borrowers divorce, loan must be refinanced into one person’s name only.

Death

If a borrower dies, the surviving co-borrower retains full ownership. No refi required.

Default

If either borrower defaults, both parties’ credit is impacted. Shared home loss risks.

How a loan exits can get complicated with co-borrowers. Consider long-term scenarios before committing.

Key Takeaways About VA Loan Co-Borrowers

• Co-borrowers must be approved and share loan responsibility.
• Adding a co-borrower can increase buying power and chances of approval.
• Co-borrowers help overcome individual borrower weaknesses.
• Requirements include income, credit, and occupancy for all borrowers.
• Non-spouse co-borrowers limit $0 down benefit on VA loans.
• Co-borrowing improves affordability but has shared default risks.
• Work through exit scenarios like selling, refinancing and default.

VA home loans present a great opportunity for veterans and military members to buy a home with favorable terms and limited costs. While co-borrowers can help overcome approval challenges, make sure to think critically about the long-term implications before moving forward.

Weigh the pros and cons for your situation to decide if applying with a co-borrower makes sense as you shop for the best VA mortgage loan.