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VA Loans and Co-Borrowers

Learn about VA Loans and co-borrowers and who is eligible to sign on a VA Loan.

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Those in the market for a VA Home Loan may find themselves in need of a co-borrower to secure mortgage financing. Adding a co-borrower to your mortgage can be beneficial when lacking the income, assets or credit needed to qualify.

The VA wants borrowers to have a DTI ratio of 41 percent or less. And, even though that’s not a make-or-break figure, depending on residual income, a potential homebuyer may need a co-borrower to help pick up the slack.

For example, a homebuyer whose debt-to-income ratio maxes out with home values greater than $200,000 would need a co-borrower with a strong financial portfolio if they were to consider homes greater than $200,000.

The VA Loan traditionally permits co-borrowers to sign on the loan when they are either your spouse or another veteran who will occupy the home. However, the Department of Veterans Affairs wants every eligible veteran, interested in homeownership, to have access to the VA Home Loan. This is why the VA does not forbid co-borrowers who don’t fall in a traditional category above.

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The caveat to this is that the VA will only guarantee the eligible borrower’s portion of the loan, resulting in the need for a down payment from the co-borrower who is signing on the loan. The down payment required is normally 12.5 percent to cover the loss of the other half of the guarantee.

Co-borrowers signing onto a VA Home Loan should realize that their information will be reviewed just as carefully as the primary homebuyer. Additionally, co-borrowers are equally responsible for ensuring that the lender is paid on time. When the lender is paid on time, both borrowers benefit, just as if a payment is missed, both would be penalized.