Buying a home with a co-borrower as a veteran can put you in a difficult situation. The VA promises to guaranty a loan in your name, not anyone else’s. The only exception they usually grant to this rule is if you buy a home with your spouse. The VA treats this as one unit and allows you to get full guaranty on a VA loan.
What happens if you buy a home with a veteran that isn’t your spouse? Do you get the same guaranty?
How the VA Guarantees a Loan for Two Veterans
In order to understand how a VA guarantees loans for two veterans, let’s first look at how they handle a veteran that buys a home with a non-veteran.
As we stated above, the VA guarantees loans only for veterans. If you go and buy a home with someone that isn’t a veteran, you will only get half of the guaranty. In other words, only half of the loan will be guaranteed by the VA. This means that you’ll need to make a down payment in order to get the loan. The down payment is usually equal to 25% of the loan amount that the VA won’t guarantee (half of the loan).
If you buy a home with another veteran, though, you will get the full guaranty. How you go about it is a personal decision. You can use all of your guaranty on the loan or you can split it up between the two of you; this way you each cover half of the guaranty.
The VA doesn’t balk when two veterans buy a home together as long as they both have entitlement, the VA will give a full guaranty.
Figuring Out What to Do
If you buy a home with another veteran, you’ll have to decide whose entitlement to use. Obviously, the easiest thing to do is split it down the middle. But what if you don’t have enough entitlement left? Maybe you used your entitlement on another home that you still own and that you refinanced with the VA IRRRL or you lost your entitlement because you lost your home in foreclosure.
If you don’t have enough entitlement, you can work it out with your partner to split it. The VA doesn’t specify how you must split the entitlement – you can do it however you see fit, just as long as both of you have enough entitlement.
Qualifying for the VA Loan
The bigger problem could be qualifying for the VA loan. It’s not enough to say that you both have enough entitlement – you must prove that you qualify. Luckily, the VA has relaxed guidelines that include:
- At least a 620 credit score (this will vary by lender) – Remember that the lender will use the lowest middle score of the two borrowers
- No more than a 43% total debt ratio – The lender will look at the debts of both parties even though you aren’t married
- Stable income/employment – One or both of you must prove that your income is stable and likely to continue for the foreseeable future
- No recent bankruptcies or foreclosures – If you recently filed for BK or lost a home in foreclosure, you’ll have to wait 2 – 3 years before you can get another VA loan
The bottom line is that the VA will guaranty 100% of the VA loan if there are two veterans on it if they have enough entitlement. You can prove your entitlement with your Certificate of Eligibility that you get from the VA. This will show lenders how much loan you are entitled to and your partner must do the same. If there is enough entitlement between the two of you to cover your loan amount, the VA will guaranty it at 100%.