Co-Signing and Co-Borrowing on a VA Loan

You can’t argue that VA Home Loan requirements aren’t as stringent as those for conventional loans. After all, VA Loans don’t require down payments, and the minimum credit scores are quite a bit lower than those needed for traditional loans. For example, while a government-back lender could, under certain circumstances, approve a VA Loan with a credit score as low as 500 (typically, they prefer at least 580), a traditional lender generally requires a score no lower than 620.

However, there are circumstances when a VA-eligible borrower might not manage to qualify for a home loan for assorted reasons. They could range from a low credit score and debt-to-ratio issues to impaired credit. As a rule, many VA lenders are pretty flexible when it comes to a borrower’s financial history, and the last thing they want to do is deny a loan. Unfortunately, it does happen on occasion. But that doesn’t mean you have to give up on the dream of homeownership. There are options available that can help to extend VA Home Loan benefits. For instance, a co-signer or co-borrower could help you get that VA Home Loan approved.

VA Loan rules state that co-signers and co-borrowers are permitted on a VA mortgage, but the lender also has a say in the matter. So, check with your VA  lender for their rules regarding co-signers and co-borrowers.

Qualify with a VA Loan co-signer

You can have a co-signer on a VA Loan if a lender won’t give you financing based on your personal income and credit history alone. It’s in the lender’s best interest if you have someone on the loan who is legally bound to repay the mortgage should you default. A co-signer helps you qualify for a home loan when your finances fall below the lender’s requirements. However, there are caveats.

Who can co-sign on a VA Loan?

The co-signer must be your spouse or another VA-qualified borrower. And you should note that the co-signer also must occupy the home. So, you can’t ask your parents or a sibling living elsewhere to help you qualify. As you can see, using a co-signer comes with some pretty serious strings attached, and neither party should take it lightly. After all, the co-signer’s credit will also take a hit if the loan ends up past due or in default. Therefore, both parties should be aware of the drawbacks and benefits of co-signing a VA Home Loan.

Co-signer’s role in a VA Home Loan

The co-signer guarantees the home loan debt for another person without ownership interest in the property.

The co-signer is legally responsible for covering the mortgage should the borrower default on the loan.

Because co-signers and primary borrowers are equally responsible, VA lenders take into consideration their income, debts, liens, foreclosures, bankruptcies, and credit score as if they were the primary borrowers. So, the better the co-signer’s financial history, the better chance of getting the VA Loan approved.

Qualify with a VA Loan co-borrower

As with a co-signer, purchasing a home with a co-borrower helps to shift some of the buyer’s financial heft. In addition, a co-borrower can give you a boost when qualifying for the loan, and they could even allow you to be eligible for a lower interest rate, which can translate to a more affordable mortgage. Under certain circumstances, you might be able to borrow a larger amount with a co-borrower.

Who can co-borrow on a VA Loan?

Although the most obvious choice for a co-borrower is a spouse, that’s not always the case. But most couples who shop for a home will put both names on the loan, and obviously, the only non-military person who can be on a VA Home Loan is a spouse. Other than a spouse, a co-borrower can be another eligible Veteran or active-duty military personnel. Remember, the person you select as co-borrower must intend to live on the property with you.

Co-borrower’s role in a VA Home Loan

Unlike a co-signer, who isn’t added to the title, the co-borrower shares responsibility for the mortgage payments and owns a stake in the property’s equity. As you can see, although there are inherent risks in both scenarios, there’s more benefit to being a co-borrower than a co-signer.

Along with supplementing your mortgage, the co-borrower is responsible for the whole property should you, the primary borrower, no longer make the payments. For this reason, you should make sure that your co-borrower doesn’t earn substantially less money than you – nor should they pose any sort of financial risk. If they do, then the VA may not accept them as your co-borrower, leaving you without a loan.

After all, as they do with a co-signer, a lender uses a co–borrower’s income, assets, and credit to assist when considering a VA Home Loan. You don’t want your potential co-borrower’s poor financial picture to sabotage your chances for a VA Loan, so it behooves you to vet them before making such an important decision.

VA loan eligibility requirements for the borrower, co-signer, and co-borrower

Don’t forget the eligibility requirements that pertain to the primary borrower also apply to the co-signer and co-borrower. They are as follows:

  • Must have served at least 90 consecutive days of active duty service during wartime, 181 active–duty service days during peacetime, or six service years in the National Guard
  • Are the surviving spouse of a service member who died while serving or due to a duty-related disability
  • Must have a Certificate of Eligibility (COE) verifying your military service history

Final thoughts

Although some use the terms interchangeably, co-signer and co-borrower have two distinct meanings. Yes, they’re similar, but the most significant difference is that the co-borrower gets an ownership in the property while the co-signer does not. Think of the co-borrower as a partner in the property venture and the co-signer as a backup if the primary borrower can no longer meet the financial obligations of the loan.

You should give a lot of thought to the downside of adding a co-signer or co-borrower. Relationships, even those you think are impenetrable, can go south. If one of you decides to default on the loan, you both suffer.

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