Using Co-Signers on VA Loans in Colorado

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The VA fully guarantees loans for veterans. If you buy a home with a non-veteran co-borrower or co-signer, you may face different requirements. The only exception is for married co-borrowers. Spouses and veterans count as ‘one’ borrower for VA entitlement in Colorado.

Let’s look at how the VA handles these circumstances.

A Veteran and His/Her Spouse Using VA Entitlement

The VA doesn’t treat a veteran buying a home himself or veterans buying a home with his/her spouse any differently. If you’re married, the VA will guarantee the loan amount up to the amount of your available entitlement. You don’t need a down payment or to consider leaving your spouse off the loan (unless he/she doesn’t bring favorable credit terms to the table).

Two Veterans Buying a Home and Using VA Entitlement

If two veterans buy a home and live in it as their primary residence, the VA uses equal parts of their entitlement, if applicable. If both borrowers have full entitlement, it’s an easy decision. If one borrower has less entitlement than the other, the total entitlement used must equal 25 percent of the amount borrowed.

The VA guarantees this loan as it would a loan bought by one veteran. Keep in mind, though, the VA must approve the situation. Before you apply for the loan, decide if you want one veteran to assume the entire entitlement or you want to split it. The VA must approve your choice and use of entitlement.

A Purchase by a Veteran a Non-Veteran Borrower

If you buy a home with a non-veteran who also isn’t your spouse, the VA won’t fully guarantee the loan. They will only guarantee your 50 percent ownership in the property. You may still get VA financing, but you’ll need a down payment equal to the percentage the VA won’t guarantee.

The normal guarantee is 25 percent of the loan amount. If there’s a 50/50 ownership in the property, you’d need a 12.5 percent down payment to make up for the difference. The VA won’t guarantee the loan for the non-veteran but guarantees the veterans portion of the loan.

For example, if you are an eligible veteran buying a home for $500,000 yourself, the VA would guarantee the full amount. You wouldn’t need a down payment and could get a loan for $500,000. If you added a non-veteran co-borrower (non-spouse) to the loan, the VA would only guarantee $250,000 of the loan. You would need a $62,500 down payment to account for the 12.5% the VA won’t guarantee.

Consider Using a Co-Signer or Co-Borrower Carefully

A co-borrower may seem like a great idea, especially if the person you chose has a high income. But lenders look at more than just the income. If you add someone to the loan, not only does it increase your down payment requirements if they aren’t a veteran, but it forces lenders to use the borrower’s credit scores and debts too.

If the co-borrower has bad credit or a lot of debt, it can drive your debt-to-income ratio up and make it harder to qualify. Evaluate the co-borrowers financial strengths carefully before deciding.

Adding a spouse to your VA loan doesn’t pose any of these issues. The VA looks at you as one unit, but they do evaluate the income, credit score, and liabilities of both borrowers. If your spouse increases your purchasing power, add him or her to the loan. It won’t affect your VA entitlement or increase your down payment requirements. If your spouse has a lower credit score or a lot of debts, keeping him or her off the loan itself may be in your best interest. You can add your spouse to the title after you close on the loan if you wish, but for loan approval purposes, weigh your options.

I’ve worked with veterans for many years and have seen many different scenarios. I’m happy to walk through your options, helping you determine which option suits your home financing needs the most.

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