Veterans have the ability to secure VA financing when buying a home, but what about a cosigner? Can veterans use a cosigner on VA loans?
Technically, the VA loan is just for the veteran, not a cosigner. The VA guarantees the loan for VA lenders, but only for veterans. The VA promises to pay the lender back 25% of the amount that you default on if you stop paying your loan. If you buy a home with another person, though, it changes the whole perspective. Luckily, the VA has some exceptions to the rule. Keep reading to find out how they apply to you.
Married to a Veteran
If a veteran is married, the VA considers this one borrower. In other words, you get full benefits just as if you were buying the home on your own. You don’t have to worry about making a down payment, with full entitlement; you can borrow 100% of the purchase price of the home, as long as it is less than $484,350.
Just like any other loan, though, the lender will look at the credit scores of both borrowers. If you put your spouse on the loan, the lender will pull the credit for both borrowers. They then take the middle score for each borrower and compare them to one another. Lenders take the lowest ‘middle’ score and use it for qualifying purposes.
This is where it can work against you to put your spouse on the loan. If your spouse has a lower middle score than you do, the VA lender will use your spouse’s credit score. While VA loans don’t have strict credit score requirements, each lender has its own requirements, which may mean that you can’t get a loan or that you’ll get a higher interest rate/higher fees if the lender does approve you.
Buying a Home With a Non-Veteran but Not a Spouse
Now, if you buy a home with a non-veteran that you aren’t married to, the situation is different. The VA doesn’t treat you as ‘one person.’ Instead, they only guarantee the portion of the loan that belongs to the veteran – so 50% of the loan. The other 50% of the loan will require a down payment as the VA considers that the non-veteran’s portion of the loan.
Here’s how that works.
John is a veteran and has full entitlement. He buys a home with Susie, who is not a veteran, and who is did not marry. They want to buy a home for $250,000. John can get his half of the home with no down payment, but Susie will need to make a 25% down payment on half of the loan, so they would need a $31,250 down payment to make up for the fact that Susie isn’t a veteran.
In this case, John and Susie may be better off looking at an FHA loan or even a conventional loan where they can make a 3.5% or 5% down payment rather than a $31,250 down payment.
Buying a Home With a Veteran
If you buy a home with another veteran, it doesn’t matter if you are married or not – the VA will provide a 100% guarantee, assuming both veterans have enough entitlement between them. You can use all of your own entitlement, all of your partner’s retirement, or a combination of the two.
Just like with a spouse, the lender will look at the middle credit score between both borrowers. If one borrower has a better credit score than the other and you can qualify for the loan without both incomes, you may want to keep one veteran off the loan.
In a perfect world, veterans would buy a home on their own. This way the VA wouldn’t have to worry about splitting the entitlement and requiring down payments. If you do buy a home with someone else, it’s best if it’s another veteran or your spouse. The VA frowns upon purchases with a non-veteran using your VA benefits. In most cases, it becomes more expensive to use your VA benefits rather than another loan.