Everything You Need to Know About VA Home Loan Cosigners

Getting a VA home loan can be a great way for eligible veterans and service members to purchase a home with little to no down payment. However not everyone who is eligible will necessarily qualify for a VA loan on their own. This is where VA home loan cosigners come in.

A VA home loan cosigner is someone who agrees to take on equal responsibility for repaying the loan if the primary borrower defaults or cannot make the payments. Cosigners can help borrowers get approved for a VA loan if they have issues like low credit scores, high debt-to-income ratios, or insufficient credit history.

In this comprehensive guide we will cover everything you need to know about getting a cosigner for a VA home loan including

• What is a VA home loan cosigner?
• Benefits of having a VA loan cosigner
• Requirements to be a VA loan cosigner
• How cosigners help you qualify
• Risks of cosigning on a VA loan
• Who can and cannot be a VA cosigner
• Using dual entitlement with a cosigner
• Cosigner scenarios and options
• Alternatives to cosigners for VA loans

What is a VA Home Loan Cosigner?

A VA home loan cosigner is someone who agrees to take on equal legal and financial responsibility for repaying the mortgage if the primary borrower is unable to make the payments. While the primary borrower is listed as the owner of the home, the cosigner guarantees the debt and can be held fully responsible by the lender if the primary borrower defaults.

The main purpose of having a cosigner on a VA loan is to help the primary borrower improve their chances of getting approved. The cosigner’s income, assets, credit score, and overall financial profile are taken into consideration alongside the primary borrower’s qualifications. This allows borrowers who cannot meet VA credit guidelines on their own to still potentially get approved.

Benefits of Having a VA Loan Cosigner

There are a few key benefits of having a cosigner on your VA home loan:

• Improved Chances of Approval – As mentioned above, the main reason to get a cosigner is to boost your chances of getting approved if you can’t qualify on your own. The cosigner’s finances help offset any issues with your credit, income, or down payment savings.

• Ability to Qualify for a Larger Loan – VA loans have a maximum conforming loan limit that varies by county. Cosigners may help you qualify for a larger loan up to this limit if you cannot do so with your income alone.

• Lower Interest Rates – Many lenders offer lower interest rates to borrowers with higher credit scores. An excellent cosigner can help you secure a lower rate.

• Avoid Down Payment Requirements – VA loans require no down payment for eligible borrowers. A cosigner may help you avoid any down payment rules lenders have for riskier applicants.

Requirements to be a VA Loan Cosigner

While anyone can technically cosign for a VA loan, lenders have strict standards for cosigners to minimize their risk. Here are some common requirements to qualify as a VA loan cosigner:

• Excellent credit – Most lenders require cosigners to have a minimum credit score between 660-720 or higher. The higher, the better.

• Low debt-to-income ratio – Cosigners must have a total debt-to-income ratio below 45% in most cases. Their income must comfortably exceed their existing debts.

• Sufficient income/assets – Stable income and healthy assets are required to give the lender confidence the cosigner can cover the payments if needed.

• No recent foreclosures or bankruptcies – These major derogatory credit events are usually disqualifying in the past 1-4 years.

In addition to strong finances, cosigners usually have to agree to occupy the home with the primary borrower and be on the mortgage title.

How Cosigners Help You Qualify for a VA Loan

There are a few ways an excellent cosigner can help improve your chances of getting approved:

• Boosts overall credit score – Lenders may approve the loan based on an average of both cosigner and primary borrower credit scores.

• Offsets high DTI – Cosigner’s income helps lower the overall debt-to-income ratio.

• Covers any down payments – Cosigner assets can be used if a down payment is required.

• Adds stability – Cosigner’s finances reassure lender that payments will be made.

Typically lenders will run your VA loan application first without the cosigner. If it is denied, adding the cosigner to the application is the next step to potentially get approved.

Risks of Cosigning on a VA Home Loan

While cosigning on a mortgage can help someone you care about get into a home, it does come with some serious risks:

• The cosigner is equally responsible for repaying the full mortgage amount, not just a portion.

• If the primary borrower misses payments, it will negatively impact the cosigner’s credit too.

• Cosigned loans can limit the total future borrowing power of the cosigner.

• Entering a legal cosigning agreement is complicated to get out of if the relationship sours.

• The home could go into foreclosure if neither borrower nor cosigner makes payments.

• Any previous cosigned loans may block the ability to cosign again.

Essentially, cosigning on someone’s home loan is one of the biggest financial favors and commitments you can make. It should not be done lightly without considering the risks.

Who Can and Cannot Be a VA Home Loan Cosigner

The VA has guidelines on who is and is not eligible to cosign on a VA home loan with a veteran:

Can Be a VA Loan Cosigner

• Spouse – Married spouses are allowed and most commonly cosign.

• Veteran – A fellow eligible veteran can cosign.

• Family Member – Parents, siblings, children can cosign with extra steps.

• Unmarried partner – Girlfriend, boyfriend, fiance with extra requirements.

Cannot Be a VA Loan Cosigner

• Former spouse post-divorce – Must refinance to keep home.

• Non-veteran friend – Very difficult to get approved.

• Business partner – Won’t meet occupancy rules.

• Minor child – Not legally eligible until 18+.

While family, partners, and other veterans are possible cosigners, additional restrictions often apply. The easiest path is having an eligible military spouse cosign on your VA loan.

Using Dual Entitlement with a VA Loan Cosigner

A unique situation arises when an eligible veteran wants to cosign on another veteran’s VA loan. This is known as “dual entitlement”.

With dual entitlement, both veterans can use their VA home loan benefits and entitlements together. Their two full entitlements provide greater coverage for the lender, often eliminating any down payment requirements.

The ways dual entitlement cosigners can combine VA benefits include:

• Veteran uses full entitlement, other veteran cosigner uses none

• Each veteran uses a portion of their entitlement

• Both veterans split the entitlement 50/50

Dual entitlement offers veterans a great opportunity to help each other buy homes with no down payment while preserving some entitlement for the future.

Common VA Loan Cosigner Scenarios

Let’s look at a few examples of how cosigners work with VA loans:

Married Couple – A veteran and spouse cosign to use the spouse’s income to qualify for a larger loan amount.

Parent/Child – A veteran has a parent cosign to help them qualify with a poor credit history or low income.

Partners – An unmarried veteran couple cosigns to buy their first home together.

Siblings – One veteran sibling cosigns to help another qualify and buy in a competitive housing market.

Friends – Two unrelated veterans agree to cosign and use dual entitlement to purchase an investment property.

Relatives – A veteran gets their child, parent, or other family member to cosign their cash-out refinance when their credit is damaged.

These scenarios illustrate the most common situations where cosigners help veterans or service members obtain VA financing.

Alternatives to VA Loan Cosigners

If you are struggling to qualify for a VA loan, a cosigner may not be your only option. Here are a few alternatives to consider first:

• Take time to improve your credit score or lower debts

• Look into VA streamline refinancing from an existing VA loan

• Seek lender exceptions or reconsider denied loans

• Leverage VA housing grants and down payment assistance

• Apply with a wider selection of VA lenders

• Consider Federal Housing Administration (FHA) loans

• Attempt to pre-qualify for a conventional loan

• Explore alternative VA mortgage options and programs

While harder to qualify for alone, these other paths may help you buy or refinance without involving a cosigner.