How to Apply for a VA Home Loan with a Non-VA Co-Borrower
When you apply for a VA mortgage on your own or with your spouse, it's pretty straightforward. You get your Certificate of Eligibility (COE) and you're good to go. However, VA-eligible borrowers can also purchase property jointly with parties other than a spouse, and with parties who are not VA-eligible. The VA calls a home loan made to an eligible VA borrower and a co-borrower who is not a spouse a "Joint VA loan." Very few people know how to apply for a VA home loan with these extra complications.
Who May Qualify as a Borrower on a VA Joint Loan?
- VA-eligible borrower and non-VA-eligible borrower(s) other than a spouse
- Multiple VA-eligible borrowers who will be using their VA home loan entitlements(s)
- VA-eligible borrower and one or more veterans who will not be using their VA entitlement(s)
- VA-eligible borrower and his or her spouse who will also be using his or her VA entitlement
Understanding VA Joint Loans
The most common type of VA joint loan is called a veteran/non-veteran joint loan and involves one or more VA-eligible loan applicants using VA home loan entitlement(s) and one or more non-spouse co-borrowers who are not using VA loan entitlements. Examples of a veteran/non-veteran joint loans:
- One veteran and his or her non-veteran domestic partner who is not a spouse
- Three veterans each using their home loan entitlements and one non-veteran borrower
- One veteran using his or her entitlement and three non-veteran borrowers
- Two veterans using their home loan entitlements and two veterans not using their entitlements
Entitlement Limits with Joint VA Loans
With a joint VA loan, the amounts guaranteed by the VA are different. Here's how the VA calculates the amount it will guarantee when there are joint borrowers:
- Divide the total loan amount by the number of borrowers. If there are three joint borrowers, two using VA eligibility and the other not VA-eligible, buying a $300,000 home, the answer is $100,000.
- Multiply that amount by the number of VA-eligible borrowers who will be using their entitlements. That result in this example is $200,000.
- Calculate the maximum guaranty based on the result of step two, using the chart below. The answer in this case is 25 percent of $200,000, or $50,000.
- The VA guarantees that amount or the total entitlements of all veteran borrowers, whichever is less. Assuming the two veterans in this example have their full $36,000 of eligibility each, their maximum guaranty will not be $72,000. It will be the lower amount, $50,000.
- With a single VA-eligible borrower, or a married VA borrower buying a home with his or her spouse, the entitlement is pretty straightforward. In this case, the entitlement for a $300,000 home purchase would be 25 percent of $300,000, which is $75,000. However, in a scenario with two VA-eligible borrowers and a non-VA co-borrower, the guaranty for the $300,000 home is $50,000, which is about 17 percent. They would need to find a lender willing to make the loan with a reduced guaranty or come in with a down payment to reduce the lender's exposure.
Joint VA Applications — Important Points
You'll probably want to get pre-approved for your purchase ahead of time. That's because VA-guaranteed mortgages with non-married co-borrowers can't be underwritten and approved by a VA-approved lender. Instead, they must be submitted for prior approval to the VA.
With joint VA loans, all borrowers must have acceptable credit. In addition, the non-VA borrower's income cannot be used to compensate for inadequate income on the part of the VA borrower – the VA-eligible applicant must have sufficient income to qualify for his or her part of the total payment.
Finally, there's a cool advantage for joint borrowers who are all using their VA entitlements. If they know how to apply for a VA home loan with multiple eligible co-borrowers, they can combine their benefits to buy additional units of multi-unit property. For example, if a property is to be owned by two or more eligible veterans, each using his / her eligibility, it may consist of four family units plus one business unit, plus one additional unit for each veteran participating in the ownership. So, two veterans may purchase or construct residential property consisting of up to six family units (the basic four units plus one unit for each of the two veterans), and one business unit, for a total of seven units.