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What are the VA Loan Co-signer Requirements?

va loan co-signer requirements

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In the world of VA loans, borrowers often find themselves pondering over the question, “can you have a cosigner on a VA loan?” This query, though not uncommon, encompasses a few different factors including credit score requirements, income ratio, and eligibility requirements. VA loans, being unique in their structure and rules, bring about a different set of circumstances when it comes to having a cosigner.

A VA Loan Co-Signer Can Help You Qualify

The potential benefits of having a cosigner are many. If the primary borrower does not meet the minimum credit score or income requirements for a VA loan, a cosigner can help fill those gaps. In fact, a cosigner can bring stability to the application by satisfying the lender’s credit score requirements, providing an additional layer of assurance. It’s not just about meeting the bare minimum; a cosigner can help boost your borrowing power and potentially secure a higher home loan limit.

Can You Have a Co-Signer on a VA Loan?

Yes, VA loans do allow for a cosigner. However, the VA has strict guidelines on who can serve as a cosigner. Unlike other types of loans where virtually anyone with a good credit standing can cosign, VA loans limit cosigners to spouses and other eligible veterans. This means, while you can have a cosigner on a VA loan, the pool of eligible individuals is limited.

Who Can Co-Sign a VA Loan?

As mentioned above, only certain individuals can serve as cosigners on a VA loan. These are typically spouses of the veteran or service member, or another eligible veteran. The VA prefers the cosigner to have a military connection to ensure they understand the unique nature and responsibilities of a VA loan. Moreover, having a cosigner with a satisfactory income ratio and meeting the eligibility requirements can make the loan application stronger.

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VA Loan Co-Signer vs. Co-Borrower

When it comes to VA loans, there’s a distinction between a co-signer and a co-borrower. A co-signer is someone who guarantees they’ll step in if the borrower can’t make payments. Usually, the co-signer doesn’t live in the home being financed. A co-borrower, on the other hand, is also responsible for the loan, but typically lives in the home. A co-borrower can contribute to meeting the minimum credit score and income ratio requirements for a VA loan, thereby strengthening the application.

Non-Occupant VA Loan Co-Signers

One of the unique aspects of VA loans is the possibility of having a non-occupant co-signer. These individuals don’t intend to live in the home but agree to back the loan. However, there are strict rules around this. Specifically, the VA is quite stringent about who can co-sign a VA loan. The co-signer must either be the spouse of the veteran or another eligible veteran.

Married VA Loan Co-Borrowers and Co-Signers

For married couples, where one partner is an eligible veteran or service member, both can be on the VA loan as co-borrowers. In this case, both incomes can be considered to meet the income requirements of the VA loan. The credit scores of both individuals are also considered. It’s worth noting that there’s no minimum credit score set by the VA, but individual lenders might have their own requirements.

Unmarried VA Loan Co-Borrowers

The VA allows for co-borrowers who aren’t married to the veteran, but there are limitations. The co-borrower must be another eligible veteran. If the co-borrower is a non-veteran, the VA will only guarantee the veteran’s portion of the loan. This can limit the amount of loan credit that can be extended.

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Pitfalls Of Using A Cosigner

While a cosigner can help you qualify for a VA loan, there are some potential downsides. The cosigner is on the hook for the loan if the primary borrower defaults. This risk can impact the cosigner’s credit. Additionally, not everyone can serve as a cosigner on a VA loan. The pool of eligible cosigners is limited to spouses and other eligible veterans, potentially narrowing the options.

Will I get Approved if I Have a Cosigner?

Having a cosigner can enhance the likelihood of your VA loan application approval. When a cosigner steps in, they add a layer of security for the lender. The cosigner is agreeing to assume responsibility for the loan repayment in the event of your default. This decreases the risk for the lender, which can make them more likely to approve the loan.

It’s especially helpful if the cosigner has a strong credit score, a stable income, and meets the income ratio requirements. That said, having a cosigner doesn’t guarantee loan approval, as lenders consider various factors including your credit score requirements, loan credit history, and ability to repay the loan.

Do You Need Collateral if You Have a Cosigner?

When it comes to VA loans, the question of collateral operates a bit differently. Instead of traditional collateral, like property or a vehicle, the VA guarantees a portion of the loan. This government backing effectively serves as the collateral, giving lenders the assurance they need to issue the loan.

Having a cosigner doesn’t replace the need for this guarantee. The cosigner’s role is to provide additional assurance to the lender about the loan being repaid. Thus, even with a cosigner, the VA guarantee (which acts as collateral) is still necessary. Keep in mind that the VA typically only guarantees up to 25% of the home loan limits.