For many veterans and active-duty service members, VA loans offer one of the best pathways to homeownership due to the benefits they provide, including no down payment, no private mortgage insurance (PMI), and flexible credit requirements.
However, one area that sometimes causes confusion is whether or not an unmarried co-borrower can be added to a VA loan. This is particularly important for veterans who are purchasing a home with a partner, friend, or family member who is not their spouse.
This article explores the guidelines, challenges, and benefits of having an unmarried co-borrower on a VA loan, providing the latest information on the housing market, key eligibility requirements, and how VA loans differ from traditional mortgage products when it comes to co-borrowers.
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Can You Have an Unmarried Co-Borrower on a VA Loan?
Yes, it is possible to have an unmarried co-borrower on a VA loan, but there are certain guidelines and restrictions. When adding a non-spouse co-borrower who is not a veteran, the loan eligibility, terms, and conditions can vary.
Key Guidelines for Adding an Unmarried Co-Borrower:
- Co-Borrower Must Be a Veteran: The simplest scenario is when both the borrower and the co-borrower are veterans with their own VA loan entitlement. In this case, the process works similarly to a typical VA loan.
- Non-Veteran Co-Borrower: If the co-borrower is not a veteran or does not have VA entitlement, only a portion of the home loan will be guaranteed by the VA, which means the lender might require a down payment to cover the non-guaranteed portion.
- Eligible Occupant: Both the veteran and the co-borrower must intend to occupy the home as their primary residence.
Types of Co-Borrowers in a VA Loan
There are two types of co-borrowers that can be added to a VA loan:
1. Veteran Co-Borrower
When both the borrower and co-borrower are eligible veterans, they can combine their VA loan entitlements to qualify for a larger loan. This allows them to secure 100% financing, provided the combined loan amount does not exceed the local VA loan limits.
2. Non-Veteran Co-Borrower
If the co-borrower is a non-veteran, the VA will only guarantee the portion of the loan that corresponds to the veteran’s entitlement. For example, if the veteran is responsible for 50% of the loan, the VA will guarantee 50% of the total loan amount. As a result, the lender may require a down payment to cover the remaining 50% of the loan not guaranteed by the VA.
How the Housing Market Affects VA Loans with Unmarried Co-Borrowers
The current housing market continues to see rising home prices, making it more challenging for individuals to qualify for loans on their own. According to the National Association of Realtors (NAR), the median home price in the U.S. increased by 16.9% year over year as of 2023, making co-borrowing an attractive option for those looking to pool resources.
Benefits of Adding a Co-Borrower in Today’s Market:
- Increased Buying Power: By combining incomes with a co-borrower, veterans may qualify for a larger loan, allowing them to purchase more expensive homes.
- Shared Responsibility: With rising property prices, adding a co-borrower means sharing the mortgage burden, making it more affordable to buy a home.
- Affordability in High-Cost Areas: In high-cost areas like California and New York, co-borrowing is becoming more common, especially among younger veterans and first-time buyers who may not have saved enough for a down payment.
Down Payment Requirements with a Non-Veteran Co-Borrower
When a non-veteran is added as a co-borrower, lenders often require a down payment on the non-guaranteed portion of the loan. The size of the required down payment depends on the percentage of the loan that is guaranteed by the VA.
Example Table: Down Payment Requirements for Non-Veteran Co-Borrower
| Veteran’s Share of Loan | Non-Veteran’s Share of Loan | Required Down Payment on Non-Veteran Share |
|---|---|---|
| 50% | 50% | Down payment required on 50% of loan |
| 75% | 25% | Down payment required on 25% of loan |
| 100% | 0% | No down payment required |
Credit and Income Requirements for Unmarried Co-Borrowers
Both the veteran and non-veteran co-borrower must meet the credit score and income requirements set by the lender. The veteran’s eligibility alone is not enough to approve the loan. Lenders will assess the creditworthiness of both borrowers.
Typical Lender Requirements:
- Credit Score: Most lenders require a minimum credit score of 580 to 620 for VA loans, although some may allow lower scores.
- Debt-to-Income Ratio (DTI): The combined DTI ratio of both borrowers must typically not exceed 41%. However, some lenders may allow higher DTI ratios with compensating factors.
Advantages of Having an Unmarried Co-Borrower
Adding an unmarried co-borrower offers several advantages, especially in a competitive housing market.
1. Greater Loan Amount
With two incomes combined, veterans can qualify for a higher loan amount, allowing them to purchase homes they may not have been able to afford individually.
2. Split Financial Responsibility
Both the veteran and the co-borrower share the responsibility of repaying the loan, which can reduce the financial strain on each party.
3. Improved Creditworthiness
If the co-borrower has a strong credit profile, their income and credit can help the veteran qualify for better loan terms and potentially lower interest rates.
Challenges of Having an Unmarried Co-Borrower
While adding an unmarried co-borrower comes with benefits, there are also some challenges and risks that need to be considered.
1. Shared Financial Responsibility
Both borrowers are equally responsible for repaying the loan. If one borrower defaults or fails to make payments, it could negatively affect both parties’ credit scores.
2. Legal Implications
When two unmarried individuals purchase a home together, it’s essential to outline each party’s rights and responsibilities in a legally binding co-ownership agreement. This helps avoid complications if the relationship ends or if one borrower wants to sell their share of the property.
3. Down Payment for Non-Veteran Borrowers
As previously mentioned, non-veteran co-borrowers may be required to make a down payment, which can complicate the financing process.
Common Alternatives to Unmarried Co-Borrowers on VA Loans
If adding an unmarried co-borrower seems too complicated or risky, there are some alternative options veterans can explore.
1. Adding a Co-Signer
Instead of adding an unmarried co-borrower, veterans may consider adding a co-signer. A co-signer does not share ownership of the home but is legally obligated to repay the loan if the primary borrower defaults. However, VA loans only allow co-signers who are either a veteran or a spouse.
2. Consider Conventional Loans
Veterans who plan to co-borrow with a non-veteran partner may find it more straightforward to apply for a conventional loan, where they are not limited by VA loan restrictions. However, this comes with the need for a larger down payment and private mortgage insurance.
Frequently Asked Questions (FAQs)
1. Can I add an unmarried partner as a co-borrower on a VA loan?
Yes, you can add an unmarried partner as a co-borrower, but if they are not a veteran, the lender may require a down payment on their share of the loan.
2. Do both co-borrowers have to live in the home?
Yes, both the veteran and the unmarried co-borrower must occupy the home as their primary residence.
3. How much down payment is required for a non-veteran co-borrower?
The down payment will depend on the portion of the loan not guaranteed by the VA. Typically, lenders will require a down payment on the non-veteran’s share of the loan.
4. Can the co-borrower help improve my loan approval chances?
Yes, a co-borrower with strong income and credit can improve your chances of getting approved for a VA loan and may also help you qualify for a larger loan amount.
5. What happens if my co-borrower defaults on the loan?
Both co-borrowers are equally responsible for repaying the loan. If one borrower defaults, the other must continue making payments to avoid foreclosure.
6. Are there any tax implications for unmarried co-borrowers?
Yes, unmarried co-borrowers should consult with a tax professional regarding the division of mortgage interest deductions and other homeownership-related tax benefits.
7. What are the legal considerations for unmarried co-borrowers?
It’s crucial to draft a co-ownership agreement outlining each party’s rights, responsibilities, and the process for selling the home if the relationship ends.
8. Can I use a VA loan to buy an investment property with a co-borrower?
No, VA loans are intended for primary residences only. Both borrowers must live in the home.
