Can a Veteran Cosign a VA Loan for Someone Else?
Decipher how a veteran can co-borrow on a VA loan with non-spouses or other veterans, and its impact on their loan benefits.
A VA loan provides a unique home financing benefit to eligible service members, veterans, and surviving spouses, often allowing for the purchase of a home with no down payment and competitive interest rates. These loans are backed by the Department of Veterans Affairs (VA) and are originated by private lenders. In the context of mortgages, “cosigning” generally refers to someone who agrees to be financially responsible for a loan without necessarily holding ownership of the property. However, within the specific framework of VA loans, the concept of a “co-borrower” is more prevalent and carries distinct rules. This distinction is crucial for understanding how a veteran might financially assist another person in obtaining a home.
Understanding VA Loan Eligibility and Co-Borrowing
Eligibility for a VA loan rests with the veteran, active-duty service member, or eligible surviving spouse. To qualify, individuals must meet specific service requirements, such as 90 consecutive days of active service during wartime or 181 days during peacetime, or six years in the National Guard or Reserves. A Certificate of Eligibility (COE) confirms these service requirements and is needed to start the VA loan process. Beyond service, lenders also assess financial factors, including creditworthiness and income, often requiring a minimum credit score around 620 and evaluating debt-to-income ratios.
The VA loan program has an occupancy requirement, meaning the property financed must serve as the primary residence for the eligible borrower. The borrower is expected to occupy the home within 60 days of closing, though exceptions can extend this period up to 12 months for active-duty personnel or other specific circumstances. This requirement ensures the benefit supports homeownership for the veteran, not investment properties or secondary residences.
While the terms “cosigner” and “co-borrower” are sometimes used interchangeably in general lending, the VA differentiates them. A “cosigner” on a VA loan is someone who guarantees the loan but does not hold an ownership interest in the property. This individual is responsible for repayment if the primary borrower defaults, but they are not listed on the home’s title. For a VA loan, a cosigner must be an eligible veteran or the borrower’s spouse, and they must also occupy the home.
A “co-borrower” shares both the financial responsibility of the mortgage and ownership of the property. Both their income and credit are factored into the loan application, and they have equal rights and responsibilities for the loan and the property.
Veteran as a Co-Borrower
A veteran can participate in a VA loan application with other individuals in various capacities. The most common scenario involves a veteran and their spouse. When a veteran applies for a VA loan with a spouse, their combined income, credit, and assets are considered for the loan application. If the spouse is not a veteran, their financial information is crucial for qualification, and the loan is fully backed by the veteran’s entitlement. This arrangement is straightforward and helps maximize purchasing power.
When two eligible veterans co-borrow on a VA loan, they can combine their individual entitlements. This allows them to secure a larger loan amount without a down payment than with a single entitlement. Both veterans must occupy the home and share responsibility for the loan payments. The decision to use both entitlements, or for one veteran to use their full entitlement while the other preserves theirs, depends on their individual financial strategies and future homeownership plans.
When a veteran co-borrows with a non-veteran who is not their spouse, such as a parent, child, or unmarried partner, it is known as a “joint VA loan.” In such cases, the VA only guarantees the veteran’s portion of the loan. The non-veteran co-borrower is required to make a down payment on their share of the loan, around 12.5% of the non-guaranteed portion.
Both parties must meet the lender’s credit and income standards, and the property must satisfy the VA’s occupancy requirement. This arrangement can make homeownership accessible for both parties but introduces additional financial obligations for the non-veteran and requires prior approval from the VA.
Impact on a Veteran’s Entitlement
A veteran’s entitlement is the portion of a VA loan that the Department of Veterans Affairs guarantees to the lender. This guarantee protects the lender against loss if the borrower defaults, enabling more favorable loan terms for veterans, such as no down payment. When a veteran uses their VA loan benefit, a portion of their entitlement is committed, which affects the amount available for future VA loans. For instance, if a veteran uses their entitlement for a joint VA loan with a non-veteran, only the veteran’s portion of the loan is guaranteed by the VA. This means the veteran’s entitlement is still utilized, potentially reducing the amount available for future home purchases.
The impact on a veteran’s entitlement varies depending on the co-borrowing scenario. When a veteran co-borrows with a non-veteran spouse, only the veteran’s entitlement is used, leaving the spouse’s financial profile to support the application without consuming their own potential VA benefits. If two eligible veterans co-borrow, both use a portion of their entitlement. This can maximize the loan amount but ties up both entitlements until the loan is satisfied. In joint VA loans with non-veteran, non-spouse co-borrowers, the veteran’s entitlement is still committed to their portion of the loan, but the non-guaranteed portion attributable to the non-veteran requires a down payment.
Restoration of entitlement allows veterans to reuse their VA loan benefit for subsequent home purchases. Full entitlement can be restored once a previous VA loan is paid off, typically by selling the home. If a veteran pays off their VA loan but retains the property, they may be eligible for a one-time restoration of their full entitlement, allowing them to purchase another home with VA loan benefits. This one-time restoration is a significant benefit, enabling veterans to convert a primary residence into a rental property while still accessing their full VA loan eligibility for a new primary home. However, after using the one-time restoration, any subsequent entitlement restoration requires selling all properties purchased with a VA loan.