Co-borrowers make it easier to qualify for a loan, even a VA loan with its flexible guidelines. However, unlike other government or conventional loans, VA loans have strict borrower requirements. The VA provides a guarantee based on the borrower’s service for our country. If you buy a home with a non-veteran, you could face some exceptions.
A Spouse as a Co-borrower
The one circumstance that does not change anything is when you borrow money for a home with your spouse. Even a non-veteran spouse does not change things for you. The VA still provides the full $106,025 guarantee. This means you can borrow as much as $424,100, the full conforming amount.
Of course, you must qualify for a loan of that size. Just because you are ‘eligible’ for the loan, doesn’t mean you automatically qualify. You’ll have to prove with your credit, liability and income as well as your spouse’s credit, liabilities, and income that you can afford the loan. The VA puts a lot of focus on your residual income, or the money left over after you pay your bills. They want to make sure you can comfortably afford the loan without sacrificing.
A Veteran as a Co-Borrower
Sometimes, you want to buy a home with someone other than a spouse. If that person is also a veteran, the VA will allow them to be a co-borrower. You will receive the same benefits and guarantee. You may be eligible to buy a home for as much as $424,100.
The difference here is that the VA will use your entitlement as well as your co-borrower’s entitlement for the loan. They usually split it down the middle 50/50. Let’s say you buy a home for $250,000. You would use $62,500 total entitlement. The VA would split that in half, using $31,250 of your entitlement and $31,250 of your co-borrower’s entitlement.
If you would prefer that the VA use all of your entitlement and none of your co-borrower’s, you have to let them know. However, in order to qualify for the loan, your co-borrower must confirm that he/she will live in the home as his/her primary residence.
A Non-Married and Non-Veteran Co-Borrowers
What if you want to buy a home with someone you are not married to and that is not a veteran? This is where the VA has an issue. It’s not that you can’t buy the home with someone you are not married to and that isn’t a veteran. It’s the guarantee that the VA provides. Technically, the guarantee is for you. When you are married, it’s like you are one unit, so the VA does not take issue.
When you buy a home with someone you are not married to, though, the VA will not provide their full guarantee. Instead, they cut it in half. Instead of a 25% guarantee, you’ll get a 12.5% guarantee. While this doesn’t sound like a big deal, it is to the lender. They want that guarantee in the face of default. In order to make up for it, the lender may require a 12.5% down payment. This helps them recover the 12.5% loss of a guarantee by lending to you and a non-veteran, non-spouse.
Here’s an example:
You want to buy a home with your best friend. He is not a veteran. The home has a purchase price of $200,000. Normally, you’d borrow $200,000 with your VA loan. But, because you are borrowing with a non-veteran, you must put down $25,000.
Of course, you and your co-borrower will have to prove that you can afford the loan as well. The lender will need to verify where the $25,000 comes from and confirm that it is not a loan.
The VA Guidelines
Whether you apply for the VA loan with co-borrowers or on your own, you must follow the VA guidelines. Luckily, they are very relaxed.
- Minimum 620 credit score
- Maximum 43% total debt ratio
- Enough residual income for your area and family size according to the VA
- Clean credit history
- Stable employment
- Proof that you will live in the home as your primary residence
The VA is very flexible on their loans. Even the loans you sign with non-veteran co-borrowers are flexible and a great way to buy a home. Make sure you shop around to find the best deal, especially if you have a non-veteran co-borrower. Some lenders won’t be willing to take the chance without the full VA guarantee. Shopping around should help you find a willing lender with a great rate for you to buy your home, though.