Joint VA Home Loan: Non-Eligible Co-Borrowers
Special rules apply when co-borrowers who are not married take out a VA home loan together.
Not all co-borrowers on a VA loan need to be VA-eligible. However, only the eligible borrower’s portion of the loan is guaranteed by the VA.
That means a down payment will likely be required in co-borrower scenarios like:
- A veteran and one or more nonveterans (not spouse)
- A veteran and one or more veterans (not spouse) who will not be using VA entitlement
When you buy a home with a non-veteran spouse, that is not considered a joint loan, and an you can still buy with zero down.
How Are The Guaranty And Down Payment Determined?
When there are VA-eligible and non-VA-eligible borrowers buying a home together, lending rules are different.
In these cases, the lender must pro-rate the amount of the “VA guaranty.” In other words, it limits the amount that can be purchased with no down payment.
- Two borrowers
- Only one using VA entitlement
- Purchase price: $400,000
- Vet’s portion: $200,000
- Maximum guaranty = 25 percent of $200,000
In scenarios like this one, the lender making the VA loan will often require a down payment on the non-VA-eligible portion.
For example: The non-VA borrower is responsible for $200,000. So their down payment is equal to 25% of $200,000 — or $50,000 total.
This down payment requirement for non-VA borrowers helps protect lenders.
Since VA loans are guaranteed up to 25% by the Veterans Association, lenders expect that same level of protection even when a non-VA-eligible person is co-borrowing.
Thus, the 25% down payment required on that person’s portion of the loan.
Qualifying For The VA-Eligible Buyer
To use your VA entitlement, you must certify that you intend to make the house your primary residence – you can’t just use your entitlement to help a friend buy a house that you won’t be living in.
You need to meet standard VA underwriting guidelines, which are fairly liberal. The VA states, “Veteran’s credit must be satisfactory and veteran’s income must be sufficient to repay that portion of the loan allocable to the veteran’s interest in the property.”
The VA has not established a minimum credit score, although many VA lenders have — often between 620 and 640. The average FICO for approved VA home loans, according to Ellie Mae, is 707.
The non-VA borrower’s income cannot be used to compensate for inadequate income on your part.
Your income should be sufficient to cover your portion of the monthly mortgage payment, property taxes and insurance, plus monthly payments on your accounts like auto loans and credit cards.
Lenders determine this either by applying a maximum debt-to-income (DTI) ratio of 41 percent, or using a residual income formula for your household size and location.
Qualifying For The Non-Eligible Buyer
Non-eligible co-borrowers do not have to certify that they will reside in the home.
For them, underwriting is slightly different. The non-eligible borrower’s credit must also be satisfactory. However, the combined income of both borrowers can be considered in evaluating his or her repayment ability.
In other words:
- Income strength of the eligible borrower can offset income weakness of the non-eligible borrower.
- Income strength of the non-eligible buyer cannot offset income weakness of the veteran.
Your lender has to submit your application for prior approval to the VA. Expect your full loan approval to take a little longer because of this, and build that into any offer you make.
What Are Today’s VA Mortgage Rates?
Current mortgage rates depend on the type of VA home loan you choose, your strength as a borrower, and how aggressively you shop for your VA mortgage.