FAQ: Can a Veteran Home Loan Have a Cosigner?
When you buy a house, you’re responsible for monthly mortgage payments until the loan is repaid in full. This is true whether you’re using a traditional mortgage or buying a house with a veteran home loan. For some borrowers, using a cosigner is a great way to reduce financial liability, especially if they’re dealing with high interest rates or trying to buy a more expensive home. If you’re using a VA loan, cosigners are an option, the process works a little differently.
Once a soldier, sailor, airman, or Marine has served enough time on active duty to qualify for the VA loan program, they may apply for VA loan eligibility and start working with a participating lender to buy or build a home with no money down, zero mortgage insurance, and no penalty for early payoff of the VA mortgage.
According to PRWeb, there are two types of individuals who qualify to be a co-borrower:
When couples look for a home together, they often put both their names on the loan. Applying for a VA loan with your spouse as a co-borrower, regardless of their veteran status, is no different than with other loans.
Except for a spouse, no civilians may co-borrow for a VA loan. Furthermore, the veteran you choose to be a co-borrower must intend to live on the property with you.
Whether they're your spouse or a close friend, purchasing a home with a co-borrower carries a degree of risk and must be thoroughly considered before any major decisions are made.
Cosigners Must Be Qualified for a VA Loan
With traditional home loans, anyone can be a cosigner as long as they’re willing to take responsibility if the primary borrower defaults on the loan or misses monthly payments. However, if you’re buying a house with a veteran home loan, your co-signer must also be a qualified borrower.
This means your co-signer must be a qualified spouse or a current or former member of the armed forces. If you’re married, your spouse must be your cosigner. This helps ensure that payments will get made even if you’re deployed. If you’re single and buying a house for yourself, your cosigner can be another unmarried member of the armed forces or an unmarried veteran.
You May Not Need a Cosigner In the First Place
Most people rely on cosigners to make their loan applications more appealing to banks and traditional lenders. If the primary borrower has bad credit or low monthly income, a cosigner can boost their chances of approval. However, as a VA borrower, your credit score isn’t the main factor lenders consider.
This means you’re more likely to qualify for the loan with a low credit score than you would if you pursued a traditional mortgage. Even better, you’ll get a lower interest rate than you would with a traditional lender.
If You Choose to Use a Cosigner, Do So Carefully
Anytime you use a cosigner, the lender will consider their finances, too. You need to choose a cosigner that has a regular source of income and a good credit score to improve your chances of qualifying. Choose someone who will make your application look better than it would on its own. If you have any doubts about someone’s credit history or their income, don’t use them as a cosigner. It could end up hurting your application.
Getting A Cosigner On A VA Mortgage: The Basics
There is a very important factor to consider when dealing with questions like these–two sets of rules. There are the rules of the VA mortgage loan program itself, which are found in the VA Lender’s Handbook.
Then there are the standards of the financial institution issuing the mortgage or refinance loan. VA loan rules and lender requirements both are subject to state law. VA loan rules never override state or federal law.
VA loan rules state clearly that it is permissible to have a co-signer on a VA mortgage. The basic question is answered, but lender standards will also have a say. Your participating lender may not allow a co-signer depending on circumstances. Or the lender will permit one ONLY if circumstances meet certain criteria.
Non-Veterans And Those Without VA Loan Entitlement
If you want to have a cosigner for a VA mortgage, there are two things you need to know. The first is that the Department of Veterans Affairs permits a cosigner in this context but the VA does NOT guarantee the non-veteran/non-military member’s portion of the loan.
Only the veteran’s portion of the loan may be guaranteed by the VA. In other words, a civilian or someone with no VA mortgage loan entitlement cannot have their half or portion of the loan as a VA mortgage.
The second thing you need to know is that your participating lender may or may not permit a cosigner in this context.
When talking to your loan officer about the option to apply for a home loan with a non-VA borrower, be sure to use the term “joint loan” or “joint VA loan”. Experienced VA lenders know this term and will immediately understand what you are trying to do and advise accordingly.
One critical issue associated with a non-veteran, non-spouse civilian applicant? The loans offered as joint VA mortgages will require a down payment from the non-veteran applicant. VA zero-down options are only for the veteran/borrower with VA loan entitlement.
Some lenders may require a transaction between a civilian who is not a spouse and a veteran as cosigners or co-borrowers to be processed as a “non-occupying co-borrower”. That designation may result in changes in the loan terms you are offered. Be sure to ask if this is a possible factor as it may affect your out of pocket costs of the mortgage or refinance loan.
Is there a Flipside of Adding a Co-Borrower?
Adding a co-borrower has its share of downsides, too. An example can be when relations between a borrower and a co-borrower turns bitter, they may decide to give up the loan. There are instances when after taking joint loans, husband-wife, father-son, or friends pulled themselves out of the mortgage or sought to refinance options because of an internal rift. If you are, therefore, planning to apply for a VA loan with a co-borrower, keep in mind this downside.
Regardless of whether your co-borrower is your spouse or best friend of twenty years, you need to know what their credit score is. If you trust each other enough to take joint financial responsibility for a home which you'll both be living in, no one's credit score should be a secret. Solving bad credit isn't a fast process, but taking time to raise their score before attempting to buy may help prevent worry and stress in the future.
While it may seem absurd to be so thorough with people you most likely know better than anyone else, it's important to take each variable in the process seriously. If your co-borrower candidate doesn't have enough income to reliably help with the mortgage payments, it's far better to risk a heated exchange before committing to a home purchase. Ideally, both the primary borrower and the co-borrower know each other's finances well enough to make informed, secure decisions about the purchase of their home and planning their monthly budget.