Co-Borrower Questions and Answers
Prospective homeowners may be looking to lessen some of the inherent financial burdens that come with home ownership. Sometimes, getting a second borrower for a VA loan can result in better terms, such as lower interest rates. In this article, we will look at the requirements for adding a co-borrower on a mortgage loan and when that option might be beneficial for military borrowers.
Who Can Be Considered a Co-Borrower?
Typically, a co-borrower on a home loan is a spouse, but this is not a requirement when applying for a VA loan. However, apart from a spouse, the U.S. Department of Veteran Affairs dictates that a co-borrower cannot be another civilian. It is, however, possible for another veteran or active-duty service member to be a co-borrower on a mortgage. So, if you’re wondering, “Can I put my girlfriend on my VA loan?” or “Can I get a VA loan with someone who is not my spouse?” the answer depends on their military status. Regardless, getting a co-borrower on a home loan is a serious commitment, as the veteran co-borrower must intend to live on the property with you.
It is also worth noting that a co-borrower and co-signer serve two different roles when it comes to applying for a mortgage. Fundamentally, a co-signer agrees to sign on a loan if the primary borrower has some kind of financial deficit that may impede their ability to qualify for a mortgage. The co-signer takes responsibility for the debt should the borrower default, but does not have ownership in the property.
A co-borrower, on the other hand, will incur the same financial obligations to the mortgage as the primary borrower, but does have ownership of the property. Joint loans pose less risk to lenders because they are repaid by two sources of income, rather than that of a single borrower. This also means that if one co-borrower is delinquent on a mortgage payment, the lender is still entitled to demand repayment for the full loan amount. Defaulting on a joint loan will have a negative impact on each borrower’s credit score.
When Should You Consider a Co-Borrower?
For married veterans, having a spouse as a co-borrower results in equal ownership of a property. From a financial standpoint, if one spouse has better credit than the other, the spouse with the better score may help to secure better terms on a home loan.
Additionally, a co-borrower may be useful for individuals who require help obtaining a loan that they would otherwise not be able to qualify for on their own. That’s because a joint loan poses less of a risk to lenders because there are two sources of income that can be used for repayment. Remember, both applicants will be considered owners of the property. Ultimately, co-borrowing on a loan could be a win-win situation for both borrowers, as long as each person keeps up their end of the bargain.
What Conditions Does a Co-Borrower Have to Meet?
There are certain risks to take into account before agreeing to a co-borrower arrangement. Your lender will analyze the financial status of both you and your co-borrower, taking them into account equally when deciding on a loan approval. Here is a checklist you will want to go through before making any final decisions:
- Check their credit score. An ideal credit score on a VA loan typically ranges between 580 and 660. When co-borrowing, the lender will look at the lower of the two scores to determine whether to issue a loan. Keep in mind that a better score equals better rates and terms on a loan, while a lower score results in less favorable rates and terms for borrowers.
- Calculate their income. Lenders will look at the co-borrower’s income statements to determine the risk associated with issuing a mortgage loan. However, the primary borrower will want to ensure that they don’t get stuck with a monthly bill they cannot afford without the co-borrower’s financial contribution.
- Consider their future financial stability. Because a co-borrower is held to the same implications as a primary borrower, it is vital for the co-borrower to understand the financial burden of home maintenance falls equally on their shoulders. Should the primary borrower be unable to make payments, the co-borrower will bear that responsibility.
Once you have your co-borrower’s financial ducks in a row, your lender will use the specific criteria set by the VA to issue the guaranteed portion of the loan. The guaranteed portion is then calculated by dividing the home’s price by the number of borrowers on the loan (home price ÷ number of borrowers). For example, if one veteran (or active-service member) and one non-veteran apply for a $400,000 loan, the formula would look like this:
$400,000 / 2 = $200,000
This number is then multiplied by the number of borrowers eligible for the VA entitlement program.
$200,000 x 1 = $200,000.
On most loan types, the VA guarantees up to 25% of the loan amount.
This means $200,000 x 25% = $50,000.
In this case, the amount on the loan guaranteed by the VA is typically enough to cover the down payment on a house. However, if the issuance of the VA’s guarantee on a joint loan is less than 25%, the borrowers may need to discuss the possibility of putting less as a downpayment.
Lastly, the VA funding fee is applicable for the borrowers on the loan who are eligible for the VA entitlement program.
How Can Hero Loan Help?
Hero Loan was created specifically with veterans in mind to make navigating the VA loan process easier. It is our mission to get military homeowners into the home of their dreams with guidance and support that takes the hassle out of the application process. Hero Loan is also proud to give back to its veteran community beyond a home loan capacity. We are proud to support the efforts of the Fisher House Foundation, which builds homes for military and veteran families to stay in free of charge while loved ones are in the hospital.
Get started with Hero Loan today to see how you can qualify for a loan in less than five minutes! With our in-house streamlined services, you can get closing periods in as little as 14 days. So reach out to one of our lending experts by giving us a call at (866) 222-0219. You can also reach us through our live chat service and get started on your co-borrower loan application today!