Does VA Allow Non Occupant Co-Borrower?

A VA home loan offers a significant benefit for eligible veterans and service members seeking to purchase a home. While these loans are well-known for features like no down payment requirements, the process can become more intricate when a non-occupant co-borrower is involved. A non-occupant co-borrower is an individual who signs for the mortgage alongside the veteran but does not intend to live in the financed property. The Department of Veterans Affairs (VA) does permit the inclusion of a non-occupant co-borrower under specific conditions, primarily to help the veteran qualify for the loan. This arrangement allows the income and credit of another party to be considered, potentially expanding homeownership opportunities for veterans who might otherwise face financial hurdles.

Understanding Non-Occupant Co-Borrowers

A non-occupant co-borrower on a VA loan is an individual who assumes legal responsibility for the mortgage debt with the veteran but does not reside in the home being purchased. The primary motivation for a veteran to include a non-occupant co-borrower often stems from a need to strengthen their loan application, perhaps to meet income or credit requirements that they might not satisfy independently.

While some lenders historically asserted that only a spouse could co-sign a VA loan, current VA guidelines are more flexible. A non-occupant co-borrower can be a family member, such as a parent, adult child, or sibling. Some lenders may even permit non-family members to serve as non-occupant co-borrowers, provided they meet specific VA and lender criteria.

A non-occupant co-borrower shares ownership and is fully liable for the loan, unlike a co-signer who only guarantees it. In a joint VA loan, the non-occupant is considered a co-borrower, meaning they have an ownership stake and are equally responsible for the entire loan amount. If the veteran defaults, the co-borrower is obligated to make the payments.

The veteran must still intend to occupy the home as their primary residence, as this is a fundamental requirement for VA loans. This occupancy rule remains in effect even with a non-occupant co-borrower. The non-occupant co-borrower’s role is to bolster the financial strength of the application, not to satisfy the veteran’s occupancy requirement.

Financial and Eligibility Considerations

Both the veteran and the non-occupant co-borrower must satisfy the lender’s credit standards, which generally align with VA guidelines. Lenders typically look for a minimum credit score, often in the range of 580 to 660 for all parties involved. A strong credit profile for both borrowers improves the overall strength of the loan application.

The incomes of both the veteran and the non-occupant co-borrower are combined to assess the household’s ability to repay the mortgage. Lenders evaluate the combined debt-to-income (DTI) ratio, which compares total monthly debt payments to gross monthly income. A DTI ratio preferably under 41% is often sought to demonstrate sufficient financial capacity. This combined financial picture allows for a potentially larger loan amount than the veteran might qualify for alone.

A crucial difference for VA loans with non-occupant co-borrowers is the down payment requirement. Unlike standard VA loans that often require no down payment for eligible veterans, the inclusion of a non-occupant co-borrower typically necessitates a down payment. This is because the VA’s guarantee usually extends only to the veteran’s portion of the loan, which is generally half of the total loan amount in a joint loan with a non-veteran. To mitigate the increased risk for the portion not guaranteed by the VA, lenders commonly require a down payment, often around 12.5% of the total loan amount.

The VA funding fee also applies to these loans, though its calculation can be complex. This fee, a one-time payment that helps offset the cost of the VA loan program to taxpayers, is typically a percentage of the loan amount. While specific percentages vary based on factors like service history and prior VA loan use, the fee is generally applied to the entire loan amount, not just the veteran’s portion. For joint loans involving a non-veteran, the funding fee might be higher than for a veteran-only loan, reflecting the reduced VA guarantee.

Both parties are subject to “joint and several liability” for the loan. This means that each borrower is individually responsible for the entire debt, not just their proportional share. If one borrower fails to make payments, the lender can pursue the full outstanding balance from the other borrower.

Application and Underwriting Process

The non-occupant co-borrower will need to provide extensive financial documentation, including proof of income such as pay stubs and W-2s, tax returns for the past two years, and bank statements to verify assets and reserves. Identification documents, like a driver’s license and Social Security card, are also required. These documents are in addition to all the standard paperwork the veteran provides for a VA loan.

It is advisable to select a lender with established experience in processing VA loans that involve non-occupant co-borrowers. Not all lenders are familiar with these specific VA guidelines, and choosing an experienced lender can streamline the process. An experienced lender can provide precise guidance on required forms and ensure all necessary information is collected efficiently.

The underwriting process for a VA loan with a non-occupant co-borrower is more rigorous due to the additional party and the unique financial structure. Underwriters will meticulously scrutinize the financial profiles of both individuals, assessing their combined income, credit history, and debt obligations. They will pay close attention to the down payment amount, ensuring it meets the requirements for the non-guaranteed portion of the loan.

The complexity introduced by a non-occupant co-borrower can extend the processing time for the loan. While some VA loans may close in around 30 days, a joint VA loan with a non-occupant co-borrower might take longer, potentially 35 to 38 days or more, due to the additional layers of review and approval required. After initial submission, applicants should anticipate potential requests for additional information or clarification from the underwriters. Once all conditions are satisfied, the loan moves towards final approval and closing, which involves an appraisal and title work, similar to a standard VA loan.