Many Veterans who utilize the VA loan do so with another applicant. It often makes sense for prospective homebuyers to want or need another applicant on their VA loan. Using another persons income, credit score and debt level can do wonders for loan qualification.
However, not all co-borrowing scenarios are easy, and some may be harder than others. Below we break down everything a Veteran should know about VA loans with multiple applicants, including co-signers, common co-borrower scenarios and co-borrower requirements.
Getting approved for a mortgage can be tricky, especially for first-time homebuyers or borrowers with less-than-perfect credit. This is where cosigners come in. By adding a cosigner to your VA home loan application, you can boost your chances of approval and get the keys to your dream home.
But how exactly does getting a VA loan with a cosigner work? What are the requirements and risks? This complete guide covers everything you need to know about VA loans with cosigners.
What is a Cosigner on a VA Loan?
A cosigner is someone who agrees to be legally responsible for repaying the mortgage if the primary borrower cannot make the payments The cosigner’s credit and income are taken into consideration during the underwriting process to strengthen the loan application
The VA allows eligible military spouses and service members to cosign on a VA home loan. This can help borrowers who might not qualify on their own due to insufficient credit or income.
It’s important to understand that cosigners share liability – if the primary borrower defaults, the consequences impact both parties. Missed payments can damage the cosigner’s credit score too.
VA Cosigner Requirements
To be an eligible VA loan cosigner the cosigner must be
- A spouse of the Veteran borrower
- An unmarried service member
In addition, VA cosigners must:
- Occupy the home as their primary residence
- Have a good credit score (usually 640 or higher)
- Demonstrate stable income and employment
- Be willing and able to repay the loan if needed
Cosigners should be prepared to provide financial documents like bank statements, tax returns, and pay stubs during the application process.
Pros and Cons of a VA Loan Cosigner
Pros
- Improves chances of mortgage approval
- Allows higher loan amount
- Offsets issues like low credit scores
- Combined incomes increase buying power
Cons
- Cosigner is liable for repayment if borrower defaults
- Borrower’s late payments damage cosigner’s credit too
- Strains relationship if borrower struggles financially
- May require down payment without full VA entitlement
As you can see, bringing a cosigner on board is not a decision to take lightly. Make sure you fully trust the borrower before agreeing to share responsibility for their VA loan.
How Does Cosigning Affect VA Entitlement?
VA entitlement refers to the amount of the loan the VA will guarantee. This is based on the type of VA loan and the service member’s time on active duty.
With a VA purchase loan, the VA entitlement covers 25% of the conforming loan limit set by the FHFA. For 2023, that works out to $104,625.
When you add a cosigner to a VA loan, things change slightly:
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The VA will only back the portion of the loan attributed to the Veteran.
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For the rest of the loan, the lender is at risk so may require a down payment.
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Entitlement is only restored once the co-borrowed loan is paid off.
So cosigning can reduce the “zero down” benefit unless the cosigner is a spouse or eligible Veteran themselves.
Alternatives to a VA Loan Cosigner
If finding a qualified and willing cosigner poses challenges, you may want to look at other options to boost your VA loan eligibility:
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Improve your credit – Pay down debts, dispute errors to increase your score.
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Save for a larger down payment – Putting 10-15% down shows the lender you’re financially committed.
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Reduce DTI – Pay off car loans or credit cards to lower your debt-to-income ratio.
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Look into other VA loans – VA Renovation Loans only require 2% down for rehab projects.
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Wait to improve financials – Give yourself more time to save money or increase income.
Steps to Getting a VA Loan with a Cosigner
Follow these key steps when moving forward with a VA loan and cosigner:
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Find an eligible cosigner – Make sure they meet all VA cosigner requirements.
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Check entitlement usage – See how much entitlement you have left and determine if a down payment is needed.
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Review lender guidelines – Specific lenders may have their own cosigner policies.
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Have cosigner provide documents – Pay stubs, tax returns, bank statements to show income/assets.
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Submit joint VA loan application – The cosigner needs to complete application sections too.
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Undergo joint underwriting – Both parties’ finances will be reviewed for eligibility.
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Close on home together – Cosigner must attend closing to sign mortgage documents.
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Make payments together – On-time payments protect both your credit scores. Seek assistance if needed.
FAQs About VA Loans With a Cosigner
Can my sister cosign on my VA loan?
Unfortunately, sisters do not qualify as VA cosigners unless they are a spouse of the Veteran. Parents, other relatives, and friends are also ineligible.
What credit score is needed for a VA loan cosigner?
The minimum FICO credit score for VA cosigners is usually around 640. Requirements vary by lender but a score of 680 or higher is ideal.
Do both cosigners’ incomes count for a VA loan?
Yes, the combined income of the borrower and cosigner is used to determine eligibility. This can allow qualification for a higher loan amount.
Can I remove a cosigner from my VA loan later?
No, the only way to remove a cosigner from a VA loan is through a refinance. You’d need to qualify on your own or bring on an eligible Veteran as the new cosigner.
What happens if my VA cosigner dies?
If the cosigner passes away, you as the surviving borrower still remain responsible for repaying the loan. The cosigner’s estate is not liable.
The Bottom Line
Cosigning on a VA loan can be a helpful strategy but also carries risks – for both parties involved. Make sure you fully understand the commitments and weigh your alternatives before moving forward. If you have an eligible and willing cosigner, follow the proper steps to ensure a smooth process.
With trusted guidance from a lender, VA loans with cosigners can remove roadblocks and put you on the path to homeownership. Just be sure both you and the cosigner are truly prepared for the joint responsibility.
Check Out Joint VA Loan Requirements
Answer a few questions below to speak with a specialist about what your military service has earned you.
Do VA loans allow co-borrowers?
Yes, VA loans allow co-borrowers on the loan. Acceptable co-borrowers include a Veteran and non-veteran spouse, two married Veterans where only one Veteran uses their entitlement, two married Veterans where both Veterans use their entitlement, and two non-married Veterans where both Veterans use their entitlement. The VA also allows whats known as a joint VA loan, where the Veteran applies with a non-Veteran, non-spouse.