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

VA loans offer distinct benefits for eligible service members, veterans, and surviving spouses, facilitating homeownership with favorable terms. Questions often arise regarding the possibility of including a co-borrower. Involving another party introduces specific requirements that differ from a standard VA loan. Understanding these nuances is important for veterans considering this path.

Permitted Co-Borrower Scenarios

A VA loan can involve a co-borrower, but the circumstances vary depending on the relationship between the veteran and the other party. The Department of Veterans Affairs (VA) differentiates between a “joint loan” and a standard VA loan when a co-borrower is involved. A joint VA loan typically refers to a loan where a veteran and one or more non-veterans (not a spouse) are liable for the mortgage and share ownership of the property. Conversely, if a veteran applies with their spouse, even if the spouse is not a veteran or is a veteran not using their entitlement, it is generally not treated as a joint loan by the VA.

For a joint VA loan, common co-borrower combinations include a veteran and at least one non-veteran who is not their spouse, or a veteran with one or more other veterans who are also using their entitlement. In these scenarios, the VA only guarantees the veteran’s portion of the loan. This means the lender will underwrite the non-veteran’s portion more stringently, and a down payment may be required to cover the part of the loan not backed by the VA. A co-borrower shares ownership interest and full liability for the debt, unlike a co-signer who only guarantees the debt without holding an ownership stake.

Non-Veteran Co-Borrower Requirements

When a non-veteran is a co-borrower on a joint VA loan, they must meet specific financial and eligibility criteria established by the lender. While the VA sets eligibility for veterans, the non-veteran co-borrower is subject to conventional underwriting standards. Lenders will assess the non-veteran’s credit score, income stability, and debt-to-income (DTI) ratio. A strong financial profile from the non-veteran can strengthen the overall loan application, potentially increasing the chances of approval or enabling a larger loan amount.

Lenders prefer a FICO credit score of 640 or higher, and a combined DTI ratio under 41% is considered ideal for all borrowers. The non-veteran’s employment history is also evaluated to ensure stable income. The non-veteran’s financial standing must qualify for their share of the loan, especially since the VA guarantee only applies to the veteran’s portion. Property occupancy requirements also apply, meaning both the veteran and the non-veteran co-borrower must intend to occupy the home as their primary residence.

Financial Implications for All Parties

In a VA loan with a co-borrower, all parties share joint and several liability for the entire loan amount. This means each borrower is fully responsible for the repayment of the loan, regardless of individual contributions or occupancy status. If one borrower fails to make payments, the other borrower is legally obligated to cover the full amount. This shared responsibility can impact the credit scores of both the veteran and the co-borrower. Any missed payments or defaults will negatively affect the credit reports of everyone named on the loan.

The existence of the joint loan can also affect the future borrowing capacity for all parties. Lenders will consider the outstanding VA loan when evaluating applications for new credit, potentially limiting access to other financing. In the event of a default, shared liability means both individuals’ financial standing could be significantly impaired. The VA funding fee also has implications when a non-veteran co-borrower is part of the loan. For a joint loan with a non-veteran, the funding fee is calculated based on the veteran’s portion, which may result in a higher effective funding fee percentage for the veteran.

The Loan Application Process with a Co-Borrower

Applying for a VA loan with a co-borrower involves specific procedural steps that integrate the financial information of all parties. The process begins with pre-qualification or pre-approval, where both the veteran and the co-borrower submit their financial details for an initial assessment. This step helps determine the combined borrowing capacity and identifies any potential issues early in the process. Lenders will evaluate the collective financial picture, considering the income, assets, and debts of both applicants.

Documentation required from both parties includes income verification, asset statements, and credit reports. The veteran’s Certificate of Eligibility (COE) is a necessary document that confirms their VA loan benefits. The co-borrower’s information is then integrated into the comprehensive loan application, allowing the lender to assess the combined financial strength for repayment. Choosing a lender experienced with VA joint loans is beneficial, as they will have the knowledge to navigate the unique requirements and ensure compliance with VA guidelines.