Just like any loan program, VA loans can be taken out with a co-borrower(s) and refinanced to add or remove their names from the loan. There are rules governing co-borrowers on VA loans and the scrutiny applied to these co-borrowers largely depends on who they are and their use (or non-use) of entitlement, if any.
Who Are Eligible Co-Borrowers?
The VA allows these individuals to take out a VA home loan with you:
- Spouse. Whether your spouse is a veteran or not, he/she can act as your VA loan co-borrower.
- Veterans. A fellow veteran who intends to live in the home with you.
Other than the spouse, it’s possible to add a civilian co-borrower to the loan. However, the VA will only guarantee your portion of the loan. This leaves the rest of the loan not guaranteed by the VA and exposes the lender to risk.
Lenders may be willing to accept this kind of loan, called joint loans, but they will likely require a down payment to cover the unguaranteed portion of the loan.
The down payment usually amounts to 12.5%, which is half of the 25% guarantee the VA usually provides to standard VA loans. The joint loan is subject to prior VA approval before it can be underwritten.
What Is Required of Co-Borrowers?
Just like you, your co-borrowers will be subject to evaluation by the lenders to check their eligibility. There are two main things that lenders look into when considering a co-borrower:
- Credit. Your co-borrower must possess a good credit score. This includes a proven track record of paying bills on time and the absence of any negative credit events.
- Income. Your co-borrower must have an income that can support his/her share in the repayment of the loan.
How About Joint Loans?
With respect to joint loans, they come in two types with varying underwriting analysis:
1. Veteran/nonveteran joint loan, which involves one veteran and one non-veteran who is not a spouse. This term applies to all other joint loans involving at least one veteran using his/her entitlement and at least one person, veteran or not, who will not be using his/her entitlement.
The lender will consider the credit and combined income and assets of both parties for this type of joint loan. The credit score of one borrower cannot compensate for the credit score of another borrower.
2. Two veteran joint loan, which involves two veterans who (i) are not married to each other and (ii) intend to use both their entitlement.
For this joint loan type, the lender must determine if the veteran’s credit is satisfactory and his/her income able to repay the portion of the loan that applies to his/her interest in the property. To the nonveteran borrower, his/her credit will be checked. But both the veteran’s and non-veteran’s income will be used to evaluate repayment ability.
Adding a co-borrower lightens the responsibility of repaying the loan. Be sure you know your co-borrower’s financial health and have been assured of his/her willingness to help you in this huge undertaking.