If you are a veteran that’s eligible for the VA loan, you may wonder if you can buy the home with a spouse, whether veteran non-veteran. While the VA has flexible guidelines for most things, they take cosigners very seriously, especially if they aren’t a veteran.
If you are married to a veteran, you may have an easier time as a cosigner. If you aren’t married, though, you’ll face additional requirements to get the loan.
Two Veterans on a Loan
If you are married to a veteran, you have the best of both worlds. You don’t have to worry about losing any entitlement. You can use one or both spouse’s entitlement to secure the loan. The VA doesn’t specify who must be on the loan.
What they care about the most is that you are able to afford the loan and pay it back. Look at both spouse’s credit before you apply for the loan. Does one spouse have better credit than the other? Lenders usually use the lowest ‘middle’ score of both borrowers. If your spouse has exceptionally bad credit, it could make it harder to secure the loan. If that’s the case, you may want to apply for the loan with only the spouse with the better credit on it.
A Veteran Married to a Non-Veteran
If you are married to a non-veteran, you don’t lose any of your benefits. You can still put your spouse on the loan and get full entitlement. This means you don’t need a down payment. The lender will treat the loan just as they would if you applied for the loan on your own, as far as entitlement is concerned.
Just as when two veterans are on the loan, though, the lender must determine both borrowers’ credit scores. They look for the middle score for each borrower and then compare them to one another. The borrower with the lowest middle score ‘wins.’ Here’s an example:
Joe and Sally are married. Joe is a veteran and Sally is not a veteran. Joe’s three credit scores are 715, 695, and 700. Sally’s three credit scores are 619, 625, and 605. When they apply for a VA loan, the lender will use Sally’s middle score of 619 to qualify. While the VA doesn’t have strict credit score requirements, 619 is often too low for most lenders. If they do get a loan, it will likely be with a higher interest rate and/or fees. This is all despite the fact that Joe’s middle score is 700, which would likely score him a decent deal on his loan.
A Veteran Buying a Home With a Non-Veteran (But not Married)
The worst-case situation is when a veteran wants to buy a home with a non-veteran that he/she isn’t married to. The VA frowns upon this situation so much so that you will end up having to put money down on the home, which is rare for VA loans.
The VA splits up the entitlement that you would receive on the loan by only guaranteeing half of the loan. This is the 50% that the veteran ‘owns.’ The other 50% will require a down payment. Since the VA guarantees 25% of the full loan amount in standard cases, they will only guarantee 12.5% of the loan. This means you must make up the other 12.5% with a down payment.
If you were borrowing $200,000, you would have to make a down payment of $25,000. That’s a large down payment on a loan that would normally provide you with 100% financing. In this case, you might be better off securing another type of loan, such as the FHA loan and leaving your VA benefits unused.
The VA is careful about who cosigns on a loan with you because the VA guarantees the loan. They aren’t going to guarantee a loan for someone that isn’t a veteran unless they are married to one. The VA takes a big risk providing the loans for veterans, but it’s in exchange for their service. The program isn’t there to let others take advantage of and at the expense of those that have VA loans and have paid the VA funding fee.