Joint VA Home Loan: Non-Eligible Co-Borrowers
Special rules apply when co-borrowers who are not married take out a VA home loan.
All co-borrowers don’t need to be VA-eligible. However, only the eligible borrower’s portion of the loan gets a VA guaranty. Entitlements are pro-rated when joint borrowers include:
- the veteran and one or more nonveterans (not spouse)
- the 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 your entitlement is not curtailed.
How Are The Guaranty And Down Payment Determined?
When there are VA-eligible and non-VA-eligible borrowers, the lender must pro-rate the amount of the guaranty. For example:
- Two borrowers
- Only one using VA entitlement
- Purchase price: $400,000
- Vet’s portion: $200,000
- Maximum guaranty = 25 percent of $200,000
The lender can choose to accept what amounts to a 12.5 percent guaranty ($50,000 of $400,000). This is unlikely, however — in most cases, the VA lender would require a down payment.
For most VA home loan borrowers, the 25 percent guaranty limits the lender’s exposure to 75 percent of the property value. So foreclosure losses up to 25 percent are covered by the VA.
Lenders funding joint VA mortgages generally want the same protection, so they’ll usually require a down payment to make up any pro-ration of the guaranty.
In this case, the required down payment would probably be 12.5 percent, or $50,000 to give the lender its 25 percent cushion.
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.