Can You Have a Co-Borrower on a VA Loan?

A VA loan is a mortgage option offered by private lenders and guaranteed by the U.S. Department of Veterans Affairs, designed to help eligible service members, veterans, and surviving spouses purchase homes. This benefit often allows for no down payment and no private mortgage insurance, making homeownership more accessible. While primarily for individual veterans, these loans can also accommodate co-borrowers, which can expand purchasing power and make qualification easier.

Co-Borrower Eligibility Criteria

Co-borrower eligibility on a VA loan depends on their relationship to the veteran. A spouse can always be a co-borrower without impacting the veteran’s entitlement or the VA guarantee on the entire loan. This allows the combined financial strength of the couple to be assessed for loan qualification.

When two unmarried veterans co-borrow, both must have sufficient entitlement for the loan amount, and their combined entitlement is utilized. This can help qualify for a larger home or when neither veteran alone has enough income. Both veterans must intend to occupy the home.

A veteran and a non-veteran who is not a spouse is a “joint VA loan” situation. In this situation, the VA only guarantees the veteran’s portion of the loan. This means the lender will typically require a down payment to cover the unguaranteed portion of the loan, often 12.5% to 25% of the non-veteran’s share, to mitigate their risk. The non-veteran’s income and credit will be fully assessed, similar to any other loan applicant. Regardless of the co-borrower type, all individuals on the loan must meet general credit, income, and occupancy requirements set by the lender and the VA.

Impact on Loan Terms and Entitlement

The type of co-borrower influences the VA funding fee and entitlement usage. The VA funding fee is a one-time charge paid to the Department of Veterans Affairs to help sustain the loan program, typically ranging from 0.5% to 3.6% of the loan amount, depending on the loan type, down payment, and prior VA loan usage. However, if a non-veteran non-spouse is included, the funding fee might be calculated differently or be higher on the veteran’s portion, as the VA’s guarantee is limited. Veterans receiving VA disability compensation are generally exempt from paying the funding fee.

Entitlement usage also varies based on the co-borrower relationship. For a veteran and their spouse, only the veteran’s entitlement is used, preserving the spouse’s potential future benefits. When two veterans co-borrow, both of their entitlements are used, which can allow for a larger loan amount but ties up both benefits until the loan is satisfied or refinanced. In the case of a veteran and a non-veteran non-spouse, the VA’s guarantee applies only to the veteran’s portion of the loan.

All co-borrowers are jointly and severally liable for the entire loan, regardless of their veteran status or the VA guarantee structure. This means the lender can pursue any borrower for the full amount if a default occurs, making it a shared financial responsibility. This liability extends to all parties on the loan, underscoring the importance of understanding the financial commitment involved before co-borrowing.

Application Process with a Co-Borrower

When applying for a VA loan with a co-borrower, lenders conduct a joint income and credit assessment for all parties involved. This comprehensive evaluation determines the combined repayment ability, considering credit scores, debt-to-income (DTI) ratios, and residual income. Lenders typically prefer a combined DTI ratio under 41% and a credit score of 620 or higher for all borrowers to ensure a strong application. The combined income of all borrowers can strengthen the application, potentially allowing qualification for a larger loan amount.

All co-borrowers must provide typical documentation required for a mortgage application. This includes proof of income, such as pay stubs, W-2s, and tax returns, along with asset statements and identification. The veteran must also provide their Certificate of Eligibility (COE), which confirms their VA loan benefit. Non-veteran co-borrowers will need to provide detailed financial documentation to allow lenders to assess their credit history and income stability.

Finding a lender experienced with VA loans is beneficial, especially when a non-veteran co-borrower is involved. Lenders may have specific underwriting guidelines for these more complex joint loan scenarios. Their expertise can help navigate the nuances of the VA’s partial guarantee and the associated down payment requirements for the non-veteran’s share. The application process involves verifying eligibility, gathering all necessary documents, and submitting the comprehensive application to a VA-approved lender for review and approval.