When Your Co-Buyer Is Not VA Eligible

You’re eligible for a VA loan and you’d like to buy a home with your SO, a friend or a family member. Is it possible? Yes! VA allows a VA-eligible buyer to buy a home with a person who is not VA-eligible or not using his or her VA entitlement. VA refers to this as a “veteran/non-veteran joint loan.”

VA loan co-buyers

In such situations, VA takes a few extra steps to protect the VA-eligible buyer. A lender cannot automatically approve the loan but must first submit the joint loan application to VA for pre-approval. VA then does some math work to calculate the portion of the loan it will guarantee and the guarantee amount. Say, a VA-eligible buyer applies for a home loan of $300,000 with a non-eligible buyer:

  1. Divide the total loan amount by the number of buyers.
    $300,000 ÷ 2 = $150,000
  2. Multiply the result by the number of veteran buyers who will be using entitlement on the loan.
    $150,000 x 1 = $150,000
  3. Calculate the maximum potential guaranty (in this case, 25 percent, based on VA’s Maximum Guarantee Table) of $150,000.
    $150000 x 25 percent = $37,5000

VA will guarantee $37,5000 of the loan. (Note: That’s quite a bit less than a lender expects when processing a VA loan. You may have to make a down payment to cover the lender’s increased risk or find a lender who is willing to offer a no-money-down joint VA loan with less than VA’s typical 25 percent guarantee.)

Once guarantee amount is determined, VA will evaluate the veteran’s credit, income and ability to repay the guaranteed portion of the loan, as well as the co-buyer’s credit and income. Note, though, that a co-buyer’s stellar credit score and big salary can’t compensate for a veteran who has bad credit and/or not enough income to repay the guaranteed portion of the loan.

Once VA has approved the loan, it will issue to the lender a Certificate of Commitment (COC) that includes the VA-eligible buyer’s portion of the loan, the guarantee amount and a reminder that VA’s guarantee applies only to the eligible buyer’s portion of the loan.

The COC is valid for six months; VA can cancel its commitment if the COC expires and the lender does not submit an extension request. Also, if changes to the loan occur between the time of VA’s approval and closing, those changes must be submitted to VA for approval.

Yes, the veteran/non-veteran joint loan has its own specific set of steps and requirements, but there are some standard VA loan rules that apply. The VA-eligible buyer must:

  1. Pay the Funding Fee, which is based on the veteran’s portion of the loan.
  2. Plan to use the property as his or her primary residence