Obtaining a mortgage is often made easier when you have a co-borrower. This is even true of VA loans, which has less restrictive guidelines than most other programs. But, there’s a catch. With VA loans, not just anyone can go on the loan with you. Because the VA gives the lender their guarantee if a borrower defaults, they only guarantee loans for veterans. If you need/want to buy a home with a non-veteran, you may face some different circumstances.
Two Veterans on a Loan
The easiest situation is when you buy a home with another veteran. You don’t have to worry about larger down payments or losing your benefits. Two veterans buying a home together means you get full guarantee. If you buy a home for the full conforming amount of $453,100, the VA will guarantee 25% of it, which means $113,275.
Buying with a veteran co-borrower means you only use half of your entitlement as well. As we stated above, you would need $113,275 total entitlement for a full conforming loan limit. However, you would only need ½ of that amount since you split it with the other veteran co-borrower. Each of you would use up $56,637 of your entitlement.
If one veteran does not have enough entitlement because they lost it by defaulting on another loan or for any other reason, you can use all of your entitlement. However, you have to let the VA know about these circumstances and obtain their approval to do so.
A Non-Veteran Spouse
If you are married to a non-veteran spouse, the good news is that you can still get full benefits for a VA loan. Your spouse does not decrease the amount of the benefit, which means you don’t have to put any money down on the loan.
The VA will still provide the full basic entitlement of $36,000 and the bonus entitlement of $77,275. This entitles you to a loan amount of $453,100 in most areas.
However, this does not mean you automatically get a loan of $453,100. You must qualify for the loan with your spouse. This means the lender pulls the credit of both you and your spouse. They take into consideration your credit score, outstanding liabilities, and both incomes. You must prove that your total combined income covers your current debts, plus the proposed mortgage payment without taking up more than 41% of your gross monthly income.
You must also prove that you have adequate disposable income, or money left over after paying your bills each month. The VA has specific guidelines for each family size and each area of the country. If your debt ratio happens to exceed the 41% threshold, you’ll then need more disposable income to make up for the higher debts. Your lender can tell you exactly how much you need to qualify for the loan.
One Veterans and One Non-Spouse Co-Borrower
There is still the circumstance of buying a home with someone that you are not married and that is not a veteran. The VA will not guarantee the full loan amount in this situation. They only provide the guarantee for the veteran. In the case of a married veteran, they will still guarantee the full loan. However, if you don’t have that marriage certificate, don’t except full entitlement.
Rather than the full 25% guarantee, or $113,275, you’ll receive a benefit of $56,637. This puts you in a bind with a lender, though. Rather than getting 100% financing, you’ll need to put down a down payment. Most lenders require you to put down the 12.5% difference in the guarantee.
On a $300,000 loan, you would need to put down $75,000 rather than nothing if you were to buy alone. At this point, it might not make sense to take VA funding. If you cannot qualify for the loan on your own, you may want to consider FHA financing as an alternative. Your veteran status does not matter and you can get a down payment requirement as low as 3.5% of the loan amount. In this case, that would mean $10,500, which is a difference of $64,500!
The VA does not state that you cannot have a co-borrower on a VA loan. They just limit who it can be and if you go outside of their guidelines, you will need to put some of your own money down on the home. This is strictly because the VA loan is meant to help veterans get a home to live in with affordable terms.