VA Home Loan: Applying with a Non-veteran Co-borrower

VA home loans are one of many great benefits available to eligible service members, veterans, and their spouses. There are numerous reasons why you as an eligible veteran should consider a VA-backed mortgage when purchasing a property. But what if you happen to have a co-borrower who isn't a veteran? Does this eliminate you from the VA's program? In many cases, you and your co-applicant may still be able to qualify for a VA home loan.

Veteran/Non-veteran Joint Loans

The VA classifies mortgages with more than one applicant (except those with a VA-eligible applicant and spouse) as "joint loans." If one of the people applying is not eligible for the mortgage program on their own, the loans are called: Veteran/non-veteran joint loans. At least one of the veterans applying for the loan must be using their entitlements and the other applicants can be non-veterans or veterans not using their entitlements. A few examples of possible loan applicant combinations:

  • One veteran using entitlement plus one non-veteran
  • One veteran using entitlement and one veteran not using entitlements
  • Two veterans using entitlements and two non-veterans

One thing that should be remembered is that any veterans using their entitlements for a VA home loan must certify that the home being purchased will be their primary residence. If the purpose of the loan is to purchase or build a multi-family dwelling, they must occupy one of the units in the building. This stipulation does not apply to non-veterans or veterans not using their entitlement to obtain the loan. The VA does not consider a loan to a veteran using their entitlements and a non-veteran spouse to be a joint loan.

Qualifying for a Veteran/Non-veteran Joint Loan

Qualifying for a Veteran/non-veteran joint loan can differ somewhat from a standard VA home loan taken out by a single veteran using entitlements. Generally, the veterans using entitlements who are applying for the loan must have satisfactory credit and incomes sufficient to repay their portions of the loan based on the property's value.

Any non-veterans who are co-borrowers must also have satisfactory credit, but qualifying for the loan is based on different standards than that of veterans using entitlements. The combined incomes of all borrowers, both veteran and non-veteran can be used to determine the ability to repay the loan

When applying for a veteran/non-veteran joint loan, the income strength of veterans using entitlements may be used to compensate for any income weaknesses of the non-veteran applicants. However, the reverse is not true. The veteran applicants must have sufficient income to repay their portion of the loan.

One consideration that should be kept in mind when applying for a veteran/non-veteran joint loan is that guaranty is only based on the veterans who are using entitlements portion of the loan. Guaranty is the portion of the loan that the VA guarantees to pay back in the event of loan default. This may possibly limit the number of lenders interested in the making the loan or the size of the loan.

Eligible Veterans/Non-veterans Joint Loan Purposes

A Veteran/non-veterans joint loan can be used for any of the eligible standard VA loan purposes such as:

  • To purchase an existing single family home, town home, or condominium in a community with VA approval
  • To build a home
  • To purchase an existing home and finance renovations
  • To upgrade the energy efficiency of an existing home by installing upgrades
  • To refinance an existing home mortgage
  • To lower the interest rate of an existing mortgage

A veteran/non-veteran joint loan can also be used to purchase a multi-family property, but the veteran using entitlements must occupy one of the units as their primary residence. If only one eligible veteran is applying for the loan, the property can contain up to four individual units with the veteran occupying one. Two eligible veterans can purchase up to four family units, one business unit, and an additional unit for each veteran using entitlements. These stipulations also apply to a new construction loan for multi-family units.

In summary, it's possible to qualify for a VA loan with one or more non-veteran co-borrowers. However, at least one of the applicants must be a veteran using his or her entitlement. An important consideration when applying for this type of loan is that the VA only guarantees the eligible veterans' portion of the loan. This may limit the number of lenders interested in making the loan or reduce the loan amount.

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