VA Loan Co-Borrowing Scenarios for Spouses and Unmarried Couples
The VA loan has co-borrower requirements that may affect your ability to take advantage of $0 down depending on the couple's marital and service status.
It can make sense for prospective home buyers to want or need a co-borrower on their VA loan. Utilizing another person’s income, credit score and debt level might do wonders for your ability to qualify for a loan. If your credit is what’s holding you back, the Veterans United Lighthouse Program is a great free resource. But before you make the decision, make sure you understand how co-borrowing with a VA loan works.
What is a Joint VA Loan?
There are lenders out there (including Veterans United) that will make a “joint loan” for a veteran and a non-spouse, non-veteran co-borrower. Imagine a veteran getting a loan with their brother, or a parent, or an unmarried significant other -- that's a joint VA loan.
These kinds of scenarios are absolutely possible, but they look a bit different than a typical VA purchase loan. That's because the VA's guaranty extends only to the veteran's portion of the loan (half in most cases).
With joint VA loans, the non-veteran co-borrower will often need to make a down payment to cover their portion of the loan. Just how much depends on a few different factors, and it can get complicated in a hurry.
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VA Loans and Co-Borrowers
Counting someone else’s income can come at a cost — you’re at the mercy of their credit and financial profile. Anyone on the loan with you will need to meet VA and VA-approved lender requirements for things like minimum credit score, debt-to-income ratio and more.
The VA doesn’t expressly prohibit non-spousal co-borrowers. In those instances, the agency tells VA lenders that it will only guaranty the eligible borrower’s portion of the home loan. That leaves a chunk of the mortgage without the government backing the program relies upon.
Does that mean you can’t secure a VA loan with your fiancé or fiancée, your long-time significant other or your civilian neighbor? No.
Let’s take a look at some co-borrowing scenarios and how they might play out in your VA loan process.
Scenario 1: VA-Eligible Borrowers and Unmarried Partners
Some co-borrowers will be subject to more financial scrutiny than others. If you plan to co-borrow with an unmarried partner or friend who’ll live in the home with you, also plan on needing money for a down payment. Remember that the VA will only guaranty the VA-eligible borrower’s portion of the loan. This also applies to VA refinancing.
Scenario 2: VA-Eligible Borrower and Spouse
Having on the loan with you a spouse or eligible veteran who will also live in the home doesn’t trigger any down payment needs. Being able to purchase with $0 down is a significant financial benefit of the VA loan, and one that nearly about 8 in 10 VA buyers took advantage of last year alone.
Scenario 3: Two Married or Unmarried VA-Eligible Borrowers
Two eligible veteran borrowers have some options when it comes to using their VA home loan benefits. You can use all of one borrower’s entitlement and save the other for future use. You can split your entitlement evenly, or you can combine the remaining entitlement of one borrower from a previous VA home loan with the remaining entitlement of the other borrower. You can read an in-depth look at VA lending for military couples in our previous post: VA Loan Entitlement Options for Military Couples
Dual Entitlement
If your co-borrower is also a veteran or a service member with VA loan entitlement, then you may want to have a more in-depth conversation about how to approach using your entitlement.
Check out another article where we take a closer look at dual entitlement options and military couples pursuing VA home loans.
VA Refinance and Co-Borrowers
Co-borrower relationships can get tricky post-purchase, too.
For example, if a couple purchases a home with a VA loan and then experiences a divorce, the civilian spouse is not automatically eligible to refinance the home with a VA loan.
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