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Joint VA Loans: What They Are and What You Need to Know

joint loans

If you’re eligible for a VA loan and want to borrow with someone who is not your spouse, a joint VA loan might be right for you. The joint VA loan program lets veterans or active-duty military service members use a joint borrower to help qualify for a mortgage.

So, how do joint VA loans work? You may be challenged by low credit scores or too much debt, but a joint VA loan can illustrate that there’s strength in numbers.

What are joint VA loans?

A joint VA loan is taken out by a veteran and another borrower. The Department of Veterans Affairs (VA) has specific rules about who can borrow with a veteran because of how VA loans are guaranteed.

To encourage lenders to make VA loans, the VA protects lenders against losses by guaranteeing at least 25% of the loan amount on loans made to eligible veterans. The full guarantee is extended to a veteran and his non-veteran spouse, or a veteran spouse who isn’t using VA benefits to qualify for the loan.

The VA recognizes a veteran may want to borrow with someone who isn’t a spouse or a veteran. Or, the veteran may want to borrow with other veterans to split up how VA home loan benefits are applied. The joint VA loan program provides guidance for applying for a VA loan with other borrowers.

Different types of joint VA borrowers

The VA uses the terms “veteran/non-veteran joint loan” and “two-veteran joint loan” when explaining how the joint VA loan program works.

Veteran/non-veteran joint loan

This joint loan is available to eligible veterans applying for a VA home loan with a non-veteran co-borrower. As noted, the non-veteran cannot be a spouse. The non-veteran can contribute income and assets to help qualify.

This can be helpful if you can’t qualify on your own for the house you want, or you have too much debt compared with your income — also known as your debt-to-income (DTI) ratio. One caveat: If the only reason you’re adding a non-veteran borrower is to use a higher credit score, it won’t help, because lending guidelines require the lower of two borrowers’ scores be used for qualifying.

Because the VA guarantee is based on the veteran’s eligibility, the VA will focus most of its attention on the ability of the veteran to repay the loan. If a non-veteran is added to a VA loan because they earn much more than the veteran borrower, the VA is not likely to approve the loan.

More than two borrowers are allowed on a veteran/non-veteran joint loan. For example, you can have a veteran plus two non-veterans, or two veterans using entitlement with two non-veterans. The VA only guarantees the portion of the loan that a veteran applies for, so additional non-veterans will create a requirement for a down payment (more on this later).

A unique aspect of a veteran/non-veteran joint loan is that the non-veteran does not have to live in the house as a primary residence. With a two-veteran joint loan, all borrowers must occupy the home.

Two-veteran joint loan

The VA handbook defines a two-veteran joint loan as one involving two veterans who are not married to each other — and both are using their entitlements. It can also involve more than two veterans as long as they are all using their entitlement to buy the property.

This can exponentially increase the borrowing power of a group of veterans, allowing them to purchase multifamily properties such as duplexes or triplexes. Later, we’ll discuss the types of properties that can be purchased with joint VA loans.

When to use a joint VA loan

Two (or more) borrowers are better than one when it comes to mortgage lending. Besides the obvious benefit of adding more income and assets to the qualifying pot, lenders prefer to see the risk of the loan spread out among multiple parties rather than just one.

It’s important not to confuse a joint VA loan with applying jointly for a mortgage loan. The VA joint loan program is similar to a joint application for any other type of mortgage, but it’s the differences specific to VA loans that you need to consider when deciding to use a joint VA loan.

You need more income to qualify for the loan

This is the most common reason to add a borrower to a loan, and it applies to a joint VA loan as well. If you were recently discharged from active duty, you may be in an entry-level civilian job that doesn’t pay that much. Adding a joint borrower’s income may help you get approved.

You have a lot of debt compared with your income

Besides a credit score, the most important factor when qualifying for a loan is your DTI. Veterans returning from an overseas tour of duty may rack up debt quickly as they adapt to civilian life when the military no longer provides transportation or quarters.

That may lead to financing a car and opening charge accounts to pay for furniture, electronics and other items that are needed for day-to-day civilian life. Adding another borrower’s income may help offset current monthly expenses to help qualify for a mortgage.

Your entitlement is tied up in another property

When a veteran uses VA home loan benefits, a certain portion of their entitlement is attached to the home they buy. Entitlement is a dollar amount the VA commits to repaying the lender if you ever default on your mortgage

If a veteran purchases a home using their VA entitlement, a portion of that entitlement is tied to the property. That reduces VA benefit borrowing power for a future home because the entitlement can only be restored if the home is sold or paid in full.

The nature of military life often includes permanent change of station notifications for many service members. If the notice is sudden or local housing values have dropped, a veteran may not be able to sell their home to restore their eligibility before moving to the new military-designated location.

The joint VA loan program allows another veteran to contribute a portion of their eligibility to help the VA homeowner with the unsold property. The only catch: The veteran co-borrower would have to agree to live in the home.

You want to purchase more than a 4-unit property

We’ll go into more detail below, but standard guidelines for VA, FHA and conventional loans won’t allow you to purchase more than a four-unit property. The joint VA loan allows at least two eligible veterans to purchase up to seven units with one purchase loan.

How to qualify for a joint VA loan

The VA evaluates each applicant for a joint VA loan based on service eligibility, ability to repay their portion of the loan and the type of loan. You can predict estimated payments on your portion of the loan by using LendingTree’s VA Loan Calculator.

Verify your eligibility

To qualify for a joint VA loan, you must have a Certificate of Eligibility (COE). You can apply for one online. Active-duty service members, reserves and National Guard members must have a current statement of service signed by a personnel officer, adjutant or unit commander.

Surviving spouses must submit VA Form 26-1817. For loans to two or more qualified veterans, the participants must meet VA eligibility requirements if they are using their entitlement.

To qualify, veterans or active military must have accrued at least 90 days of active duty or less than 90 days’ active duty if discharged because of a service-connected disability in World War II or the Korean or Vietnam wars. Gulf War veterans must complete 24 months of continuous active duty. Veterans with dishonorable discharges are not qualified. The VA notes additional eligibility requirements.

Surviving spouses can use their partner’s eligibility if the service member was killed in action or has been reported missing. They must not have remarried to qualify for the benefit.

Verify your entitlement

If you are eligible for a VA loan, you will receive an entitlement. VA entitlements are currently capped at $36,000, and most lenders are willing to lend up to four times that amount, assuming that you meet credit and income requirements.

So, if you and your spouse are both veterans and wish to apply for a joint VA loan, does that mean you can double your entitlement? Not necessarily. It is up to the VA to evaluate combined entitlements to determine the size of the loan.

But if you choose to use only one spouse’s entitlement, you’ll be free to use the other’s on a future home purchase. Or, both spouses can choose to split the entitlement so each is responsible for half the loan.

Know your funding fee

There is no down payment required on a VA loan, but all qualified veterans on the loan will have to pay a funding fee. All veterans seeking the home loan guarantee for their portion will be charged a funding fee based on the loan type, the loan amount, the branch of the military in which they served and how many times they have used their eligibility.

The funding fee can be added to the loan amount or paid in cash — but it must be paid by closing. On a no-down-payment loan to multiple qualified veterans, funding fees range from 2.15% to 3.3%. Non-veterans or disabled veterans are exempt from funding fee charges. The exemption also applies to surviving spouses of veterans who die from service-connect injuries or are killed in action.

Understand underwriting requirements

There is no minimum credit score requirement for the primary applicant of a joint VA loan. Underwriters review your credit score and credit history, and may require letters of explanation for any delinquencies. Each veteran’s income must be sufficient to repay their portion of the loan. The combined income of co-borrowers can enhance the prospects of getting the loan approved, though poor credit cannot be overcome by better credit scores among the other applicants.

The absence of credit history is not necessarily a showstopper or black mark. Recently discharged veterans may have not yet developed a credit history after serving an extended tour of active duty. They have the option of providing an alternative credit history. That may include providing a history of on-time payments for rent, utilities, cellphone bills and other monthly expenses.

Why joint VA loans may require a down payment

One of the most appealing features of the VA loan is the ability to purchase a home with absolutely no down payment. If you’re borrowing with a non-veteran borrower with a joint VA loan, a down payment will likely be required.

The VA home loan program is a benefit for military veterans, and the guarantee does not extend to non-veterans. Although the joint VA loan program allows a lender to fund a loan to a veteran and non-veteran, a down payment is required from the non-veteran.

As we mentioned above, at least 25% of every VA loan is guaranteed by the VA. If a veteran borrows with a non-veteran who is not their spouse, the guarantee is usually cut in half.

Let’s assume a veteran wants to buy a $300,000 home with a non-veteran who is not a spouse. Here’s how the figures would look for a veteran borrowing on his own or with a spouse versus one borrowing with a non-veteran, non-spouse.

Sales price Guarantee to veteran or veteran plus spouse (25%) Guarantee to veteran plus non-spouse and/or non-veteran (12.5%)
$300,000 $75,000 $37,500
Down payment required $0 $37,500

The lender would be protected for up to $75,000 worth of losses if the co-borrower was married to the veteran or was also a veteran. Because the veteran is borrowing with his spouse, or by himself, he gets the full benefit, resulting in a $0 down payment.

The guarantee for the veteran plus a non-spouse or non-veteran gets cut in half, and the lender has to charge a down payment to protect against a potential loss. As a result, a down payment of $37,500 would be required.

Properties allowed under joint VA loans

There is a range of options for approved joint VA loan properties based on the number of qualified participants teaming on the mortgage. You can buy a house, a manufactured home or a condo in a project approved by the VA. The joint loan can be used to purchase and build a new home if it is approved by the VA. You may also use the loan to buy and improve a home or add energy-efficient improvements.

How to buy a 7-unit property with a joint VA loan

If two or more eligible veterans are applying for financing, you have the potential to purchase up to a total of seven units in one transaction. This is three more units than conventional or FHA guidelines allow for — and one of the units can be used for business purposes.

The only restriction is each veteran must occupy their own unit. The other family units can be rented out, and the income can be used to offset the mortgage payment. This joint VA loan option is a great way for a pair of veterans to purchase an income-producing property that they can live in and manage on-site.

Where to find a lender

VA-guaranteed joint loans are offered by VA-participating banks, credit unions, insurance companies, mortgage companies and savings and loan associations. You can begin the process by calling 877-827-3702 or finding a nearby VA regional office, which can answer your questions about participating lenders and how to put together your VA paperwork.

Lenders may need special approval by the VA for joint loans, including applications for joint VA loans with unmarried partners as co-borrowers. Once you’re done with the VA requirements, you apply directly to the lender.

 

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