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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.

Co-signers and VA Loans

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.

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.

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