The VA home loan benefit is one of the most popular and important of those offered to military members in exchange for serving.
Once a soldier, sailor, airman, or Marine has served enough time on active duty to qualify for the VA loan program, they may apply for VA loan eligibility and start working with a participating lender to buy or build a home with no money down, zero mortgage insurance, and no penalty for early payoff of the VA mortgage.
But not everyone wants to buy a home all by themselves. For any number of reasons some want to know if a veteran home loan can have a cosigner. This is a slightly complicated issue but there are clear answers.
What Is A Veteran Home Loan?
Technically speaking, a “veteran home loan” could be interpreted as any mortgage that is offered to a veteran. That would technically include FHA, USDA, and conventional mortgages. Some home loans may be tailored to veterans by the lender, others may be government programs that have in the past offered favorable terms to applicants with veteran status.
For the purposes of this discussion, a “veteran loan” refers specifically and ONLY to loans guaranteed under the VA home loan program. A VA mortgage can be used to buy, refinance, and/or renovate a property using this no money down government-backed mortgage.
VA loans are only made to military members with VA loan entitlement which must be earned through a minimum amount of qualifying military service. Certain surviving spouses of military members who have died as a result of military service are also allowed to apply.
Getting A Cosigner On A VA Mortgage: The Basics
There is a very important factor to consider when dealing with questions like these–two sets of rules. There are the rules of the VA mortgage loan program itself, which are found in the VA Lender’s Handbook.
Then there are the standards of the financial institution issuing the mortgage or refinance loan. VA loan rules and lender requirements both are subject to state law. VA loan rules never override state or federal law.
VA loan rules state clearly that it is permissible to have a co-signer on a VA mortgage. The basic question is answered, but lender standards will also have a say. Your participating lender may not allow a co-signer depending on circumstances. Or the lender will permit one ONLY if circumstances meet certain criteria.
Another Important Area
The VA Lender’s Handbook states clearly that all applicants for a VA mortgage must financially qualify. You cannot bring on a cosigner to offset your own credit issues.
If you have low credit scores or have missed payments in the last 12 months leading up to your loan application, bringing on a cosigner will not affect your lender’s decision to approve or deny the loan on the basis of your credit information.
A cosigner can help in the income department–more income is better and two borrowers have a greater potential to stay solvent on the mortgage.
But two borrowers can never cancel each other out where credit issues are concerned. Some want a cosigner for just this reason, but it’s generally not possible with a government-backed mortgage like a VA home loan or VA refinance.
Cosigners: What Is Typically Allowed By A Participating VA Lender
Two or more veterans may apply for a VA mortgage together as cosigners. In such cases, the VA will calculate the borrower’s entitlement (those who have never purchased before will have 100% of their VA loan entitlement to use) and subtract only the amount of entitlement proportional to each borrower’s share of the financial burden of the loan.
A veteran and spouse–even a spouse who is a civilian–may apply for a VA home loan together but technically speaking this is not considered cosigning.
The VA loan program views a legally married couple buying a home as a different thing entirely than two military members or veterans applying for a loan together or a civilian who is not a spouse applying with a veteran.
Cosigners: Non-Veterans And Those Without VA Loan Entitlement
If you want to have a cosigner for a VA mortgage, there are two things you need to know. The first is that the Department of Veterans Affairs permits a cosigner in this context but the VA does NOT guarantee the non-veteran/non-military member’s portion of the loan.
Only the veteran’s portion of the loan may be guaranteed by the VA. In other words, a civilian or someone with no VA mortgage loan entitlement cannot have their half or portion of the loan as a VA mortgage.
The second thing you need to know is that your participating lender may or may not permit a cosigner in this context.
When talking to your loan officer about the option to apply for a home loan with a non-VA borrower, be sure to use the term “joint loan” or “joint VA loan”. Experienced VA lenders know this term and will immediately understand what you are trying to do and advise accordingly.
One critical issue associated with a non-veteran, non-spouse civilian applicant? The loans offered as joint VA mortgages will require a down payment from the non-veteran applicant. VA zero-down options are only for the veteran/borrower with VA loan entitlement.
Non-Occupying Co-Borrowers
Some lenders may require a transaction between a civilian who is not a spouse and a veteran as cosigners or co-borrowers to be processed as a “non-occupying co-borrower”. That designation may result in changes in the loan terms you are offered. Be sure to ask if this is a possible factor as it may affect your out of pocket costs of the mortgage or refinance loan.
Pitfalls Of Using A Cosigner
If you plan to apply for a VA mortgage with a cosigner, it’s important to have your cosigner review their credit report and FICO scores and look for anything in the cosigners credit picture that could interfere with the loan.
One of the biggest stumbling blocks in this area for some VA loan applicants? Situations where the cosigner has already cosigned on someone else’s debt, situations where an old cosigner agreement went bad and the cosigner had financial liabilities as a result.
Other issues can include debt-to-income ratios that are too high, situations where the cosigner has had late or missed payments on any financial obligation but ESPECIALLY housing expenses.
You will need to know the complete financial picture of your cosigner for best results–anything less could result in surprises along the way and sometimes those surprises come at the cost of trust or friendship depending on circumstances.
Using a cosigner is tricky for these reasons and should not be entered into lightly. Discuss your arrangement with your cosigner and be sure to work out contingency plans for worst-case scenarios involving a cosigner.
Those who fail to plan for these worst-case situations often find themselves experiencing worse conditions as a result. Don’t let a lack of communication threaten a good cosigning experience.
The Last Word On Cosigning On A Veteran Home Loan
Some neglect to research what their state’s laws have to say about these type of financial arrangements. If you don’t know what the laws of your state say about recourse in a cosigner relationship, what happens if the home gets foreclosed upon in such a situation, or what happens if the cosigner wants out of the agreement, you are at a major disadvantage.
Cosigning is a big step and you will want to know ALL your rights and responsibilities before you commit no matter if you are the veteran or the cosigner.
