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When a veteran or active duty military member wants a VA mortgage, they have several basic loan application options. The first is to take out a VA loan themselves, with no co-signer or co-borrower. The second is to apply for a VA mortgage loan with their spouse. Your husband or wife can provide additional credit and income clout when applying. Others can look to have another veteran with VA loan entitlement as a co-borrower, as long as that veteran intends to occupy the home as their primary residence.
Still, another option may be to take out a joint loan with a co-borrower who is not a spouse or a military member.
The joint loan is permitted by the VA, but there are conditions. The VA guaranteed loan is only extended to the veteran and the other applicant is not backed by the VA loan. This means there's no "coverage" on the non-veteran's portion of the loan if it later goes into default and foreclosure.
For this reason, some joint applicants may have some initial trouble finding a bank willing to issue a joint loan, but there are loan officers willing to work with your specific case. Since there's no protection for the lender from the VA for the non-military co-borrower, the bank may require a down payment on the non-guaranteed part of the loan. Because the VA typically backs a quarter of the loan, buyers with a non-spouse, non-veteran co-borrower will usually need a 12.5 percent down payment. On a typical $200,000 loan, that would be a $25,000 down payment.
As with any co-borrower loan, both parties can use qualified income and credit information to qualify for the VA mortgage. The credit information from your co-borrower affects the status of your loan, so be sure to check both debt-to-income ratios and other factors which might affect your application. It’s also important to note that co-borrowers who’ve experienced a recent bankruptcy, foreclosure or other adverse action may force you to wait to move forward. Factoring in the other person’s debts can also have an impact on your overall purchasing power. A lot depends on your specific financial situation.
Ask your loan officer for more information on how to apply for a joint loan and what paperwork your non-military borrower needs to supply to begin the process. Remember, not all lenders make these kinds of joint VA loans, but it’s certainly a potential way to utilize your VA loan benefit. It just happens to introduce a down payment into what’s otherwise a no-down payment home loan program.