VA loan co-signers can be used by eligible beneficiaries of the Veterans Affairs (VA) loan as a tool to settle into their first property using a co-signer!
When someone is seeking approval for a mortgage loan, obtaining the loan can sometimes be challenging without the correct credit scores and financial stability. In the case of the US Department of Veterans Affairs loan and what lenders look at to determine what people qualify for. You can get creative even if you are in a financially weak spot when attempting to purchase the home on your own. This is where a co-signer comes into play. Let’s say your credit score is not that great; you are transitioning from one phase of life to another with a new job or an exit from the military, you have school debt and other financial obligations that make you a little riskier for the lender, don’t fret there is hope. So you acknowledge that your credit and financial situation isn’t favorable but you have someone who is willing to consider lending your a hand, or in other words their credit. Have you ever thought about having a shared space where you allow a co-signer to come alongside you and you utilize their credit to help you use your VA loan benefit? Let’s dig in and see how you can, as the primary borrower, and them, as a co-signer (not a co-borrower), both benefit from this!
What Is A Co-signer?
A co-signer is someone who comes alongside a person who doesn’t have the best credit but still wants to obtain a mortgage to buy a home and assists the primary borrower. Using a co-signer and the co-signer’s positive credit history can assist a primary borrower in getting qualified and getting better loan options and loan terms by utilizing the co-signer’s credit. Of course, this has to be agreed upon by both parties; with that being said, most people will not just “lend” their credit to someone else for the other person to obtain a loan. With this, the primary borrower is asking the co-signer to take a hit to their credit and possibly risk being responsible for a house they are not entitled to. Knowing that information, it is easy to understand why most co-signers are typically someone who really trusts that the monthly payments will be made, therefore, they are close to the person in many cases and know the financial situation of the borrower. We often see many family members, parents, and close friends as co-signers for home buyers.
Co-signer Vs. Co-Borrowers: What’s The Difference?
A co-signer and a co-borrower are both excellent tools to consider when purchasing a home for reasons of lower credit and or joint ownership.
The co-signer is when another person is a loan applicant and loans you their credit, and you use the co-signer’s credit. In most cases, the co-signer is to help with the lack of credit or bad credit for the primary borrower, who may lack good credit history. The reason is that the borrower does not qualify independently or does qualify but the terms are not favorable. The co-signer can be a friend or family member. With a co-signer, the co-signer does not typically make any payments unless the property goes into foreclosure or late payments. The default on loan will be when the co-signer is contacted and responsible for payment.
The co-borrower is when the primary borrower and the co-borrower are both on the loan application; it is a mutual application where both credit scores, debt-to-income ratios, and assets are taken into account to decide if you, the borrows should qualify for the loan. In this case, both borrowers pay the note and share the responsibility to keep the loan current. With co-borrowing, the lender will not drive who should make the first line of payment as both are mutual owners in the property. The lender will require the co-borrowers to figure out how payment is made. These are typically spouses and partners.
What is A Co-signer Responsible For
A co-signer is a friend or family member who agrees to guarantee to pay the debt if the borrower doesn’t make the payment. Being a co-signer is an agreement to pay if the loan goes into default. It is a huge ask and can impact the co-signer if the borrower doesn’t pay the loan. The co-signer will provide the same documentation to the lender that the borrower will provide. Some of the items the co-signer is responsible for providing the lender will be:
- Income verification
- Tax returns
- W2s
- Paystubs
- Debt and asset information
- Credit report
What Are the VA Loan Cosigner Eligibility Requirements?
To be a VA loan co-signer, the veteran or VA loan holder must team up with a co-signer who does not have to live in the property with the primary borrower. Their credit score and overall qualifications comes into play when the veteran or military member does not have great creit to allow them to qualify for the purchase or to refinance loan with favorable terms.
Non-occupant VA loan co-signers
Being a non-occupant VA loan co-signer per the VA loan is stated, “any borrower on a joint loan who does not use entitlement for the loan (such as a nonveteran), does not have to intend to occupy the property. The easiest way to understand and comply with the VA loan requirements is to know that whomever the VA loan entitlement is linked to must show that they intend to live in the property.
Married VA loan co-signers
Married VA loan co-signers can actually be co-borrowers also. There will be financial implications for both parties as co-signers. The chances of approval will be higher if both signers have good credit but if the co-signer is not using any VA loan benefit eligibility they do not have to show intent on moving into the property. This particular situation is great if a military member needs to live somewhere else but they do not want to uproot the entire family for that time period. The military member or person using their VA loan benefit can buy the house, use a spouse as a co-signer. The member can move out once their tour is complete and that would be considered a form of acquiring an investment property that they could then rent out later!
Unmarried VA loan co-signers
Unmarried VA loan co-signers are encouraged if the co-signer improves the overall terms of the loan. As long as the unmarried partner or co-signer shows a better credit history and favorable information on the application to the lender this could benefit the borrower. Benefits include items that contribute to the entire loan evaluation, better credit rating, smoother loan process, and more opportunities for the overall home purchase and include larger loan amounts in some cases.
Benefits Of Having A Co-signer For Your VA mortgage
Having a cosigner for a Veterans Affairs loan allows the veteran to take advantage of the VA loan program without having to come out of pocket to purchase their property as they would if they took out a different type of loan, like a conventional loan. The co-signer can be used to increase the value of the VA loan for the borrower. Some beneficiaries of the VA loan benefits need to be qualified due to past financial habits. However, they can still get a larger loan from a mortgage lender and enjoy the benefits of homeownership by taking advantage of a co-signer with better credit. Teaming up with the VA loan benefits and a co-signer’s credit to improve the general loan terms can help improve both of the new household member’s quality of life if they decide to live in the same home!
Some of the items that will be analyzed when a loan application is put in will be to determine the loan amount
- Monthly income
- Additional income
- Source of income
- loan entitlement (active-duty service members, veterans, and other family members)
- minimum credit scores
- Debt
- School loans
- Current monthly mortgage payments
- Auto loans
- On-time payments
- Late payment history
The Drawbacks Of Co-Signing A mortgage
Co-signing for a loan for the co-signer has many risks involved. It is based solely on the belief that the primary borrower will make payments. With co-signing, the co-signer also agrees to allow the purchase and debt to be reelected on their personal credit report but is not allowed tax benefits which are fully rewarded to the borrower. The co-signer will typically know if the loan is in default once they are contacted by the note holder. It is essential to communicate and request proof of payment from the borrower, so you are not caught off guard as the co-signer when you are a responsible party required to pay the note.
Can a VA Loan be Co-signed with Someone Who is Not a Veteran or VA-Loan Eligible?
Yes, a co-signer can be an option if both the military member and the co-signer that is not VA-eligible understand that in some cases the loan terms can change. The co-signer and co-borrowers for the VA loan eligibility need to be aware of their roles in the loan repayment. Unlike some other loans, the co-signer does have to move into the house but what is like other loans, in this case, is the co-signer is still only considered to make the payments and take on financial responsibility when the primary loan borrower goes into default or falls behind. The military borrower can sometimes be provided more financial flexibility by allowing someone else to live in the house and collecting some compensation in the form of rent, but that does not relieve the borrower of making the payments that they have agreed upon in their loan terms.
ADPI Pro Tips
- You can have a co-signer but the lender may require a down payment for someone to come alongside you to help you qualify if they are not using any VA Loan entitlement. If both buyers are unmarried and have VA entitlements as your lender how this could benefit both members!
