Mortgage loans available through the Department of Veterans Affairs are an excellent mortgage option for current active-duty and veteran service members, National Guard troops, and the surviving spouses of service members. VA mortgage loans are backed by the United States federal government and offer an array of attractive benefits and mortgage options including no required down payment. While it’s easy to understand that you’ll qualify for a VA loan if both you and your spouse are service members, what if you are a service member and your spouse is not? Or if you are a veteran and you would like to purchase a home with a civilian who is not your spouse? If you are looking to qualify for a VA loan with a cosigner who is not eligible themselves for a VA loan, can you still obtain a VA mortgage loan together?
What is a mortgage cosigner and what are the benefits of having a cosigner on your mortgage loan?
Cosigners or co-borrowers are people who agree to buy property with you – and agree to be responsible for the mortgage each month and/or any default on the mortgage. Many homebuyers need or want a cosigner: cosigners can leverage each other’s credit score and income to help qualify for a home or to qualify for a larger or more expensive home.
Who can cosign on a VA mortgage loan?
The legally married spouse of a military service member or veteran can co-sign on a VA loan with no penalty and with no additional red tape, restrictions, or requirements. In these cases, the VA loans will still be 100% guaranteed and backed by the federal government.
When two unmarried people co-sign onto a VA mortgage loan and only one is an eligible individual (i.e., a service member, veteran or the surviving spouse of a veteran), the VA loan guarantee will be limited to the amount of only the eligible individual’s interest in the home.
The downside of these loans, and the fact that the federal government will only back a percentage of the loan rather than backing the entire loan, is that you will most likely be required to put down a down payment on your “mixed-eligibility” VA mortgage loan even though down payments are not required under traditional VA loans. Putting down cash helps the lender to balance out the risk they are taking on writing a mortgage loan that’s not fully backed by the Department of Veterans Affairs.
VA loans offer many advantages and benefits that are not offered on FHA loans or conventional mortgage loans. Call CityWorth Mortgage today to speak to an experienced VA lender who can help get you onto the road to home ownership today!
* Specific loan program availability and requirements may vary. Please get in touch with the mortgage advisor for more information.
There are many different options when it comes to purchasing a home with a VA-insured mortgage. Some borrowers are confident buying the house by themselves, while others prefer the shared responsibility and lower monthly financial obligation by co-borrowing on their VA loan. And some need a co-signer to make the loan happen.
Key Takeaways
- Co-signer and co-borrower mean two different things.
- You can have a co-signer or co-borrower on a VA loan.
- The co-signer's financial strength can help or hurt your application.
While often used interchangeably, co-signer and co-borrower mean two entirely different things.
A co-signer guarantees debt for someone else and typically doesn't have an ownership interest in the property. Essentially, a co-signer is legally responsible for paying the mortgage if you default or stop making payments.
Typically, you may need a co-signer if you can't otherwise qualify financially for a VA loan on your own.
Can you have a co-signer on a VA loan?
Yes, a co-signer can be a spouse or eligible Veteran that also occupies the home.
Financial Strength of the Co-Signer
Adding a co-signer to a VA loan increases the prospective borrower's income total and makes them legally and financially bound to the loan. There's no question it's nice to have a bump in income, but at what cost?
If a co-signer can contribute income to the VA loan application, but has paltry credit or debt history, then the overall VA loan application will be affected, and not for the better.
VA lenders will consider the co-signer's income, debts, liens, foreclosures, bankruptcies and credit score. VA lenders have varying requirements for credit scores and DTI ratios, but the better the co-signer's numbers, the better chance of approval for a VA loan home.
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Co-Borrowers and VA Loans
More common than co-signing is having a co-borrower on your VA loan.
The difference is the co-borrower will have an ownership interest in the property and works with you to make the payments on your VA loan.
Co-borrowing is most common between spouses, but like co-signing, it can include another eligible Veteran.
Who Can't Co-Borrow or Co-sign a VA Loan?
Anyone can co-sign or co-borrow on your VA loan, depending on the lender's policies, but the VA may not guarantee the entire loan.
While the VA guidelines may allow a non-spouse, non-veteran to co-sign for a mortgage, they will not fully guarantee the loan. The VA Guarantee is limited to that portion of the loan allocated to the Veteran's interest in the property. That leaves lenders with more risk since the VA will not put a guaranty on the non-Veterans portion.
Some lenders will allow for non-spouse, non-Veteran co-signers in what's called a "joint loan." Those typically come with down payments of 12.5 percent. Essentially, the VA lender cuts the VA's maximum guaranty of 25 percent in half because it will not assume the risk of the non-spouse, non-veteran co-signer.
Dual Entitlement
Co-borrowing on a VA loan with another VA-eligible Veteran or spouse can keep down payments out of the picture. But it's important to communicate and have a plan in place concerning how to split up entitlement.
Unless the VA-eligible co-borrower is your spouse, the VA must approve the pairing. Dual entitlement gives the borrowers the option of each using some of their entitlement or having the primary borrower use only their entitlement. Between Veteran co-borrowers, a single borrower can use all their VA loan entitlement, or the Veterans can share the entitlement between them depending on their preferences.
Keep in mind the other Veteran will need to intend to occupy the home as their primary residence.