Eligibility Requirements for Co-Signers on VA Loans
Guide to VA Loan Eligibility
The VA guidelines recognize legally married spouses of qualified veterans as co-signers on VA loans, and lenders can include their income. These loans can be fully guaranteed by the VA.
The VA guidelines will allow for more than one eligible veteran to purchase a home. If more than one eligible veteran is involved, VA divides the entitlement charge equally between them, if possible. Provided the occupancy requirement is met, these loans can be fully guaranteed by the VA.
While the VA guidelines may allow for a non-veteran to co-sign for a mortgage loan, 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-veteran’s portion.
When used correctly, co-signing on a VA loan is a great boon, but it should not be done solely to increase income. Hitching to somebody else’s financial history can hurt your VA home loan application.
VA Loan Co-Signers’ Financial Strength
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 and/or debt history, then the overall VA loan application will be affected, and probably not for the better. Keep in mind that your co-signer must consider the financed property as their primary residence.
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.
Co-signing 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-signer 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 signer use only his or her entitlement. Remember, the other veteran(s) will need to intend to occupy the home as their primary residence.
Some lenders will allow for non-spouse, non-veteran co-signers in what’s called a “joint loan.” Those come with down payments of 12.5 percent. Basically, 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.