If you want to take out a loan with another person who is not your spouse, such as a son or sibling, there are options, including VA loans. Assuming you are eligible, the VA allows unmarried co-borrowers to be listed on the loan, which creates new opportunities for a wide variety of borrower.
Using what’s known as a “joint loan,” the VA will actually insure half of the borrower’s purchase (technically the half assumed by the veteran), so the unmarried co-borrower would need to bring in 12.5% of the purchase price in additional downpayments, and the veteran will need to qualify for their half of the loan.
In this case, the two borrowers can qualify for the loan together!
VA Joint Loan: Creating More Opportunities for Veteran Borrowers
What is a Joint Loan?
One of the most useful components of the VA’s home-loan program is that veterans can utilize what’s known as a “joint loan.” This is a type of loan where the veteran and another person (who does not need to be a veteran) are both liable for the mortgage and both own the property.
A VA joint loan can be made to a veteran and a wide variety of different people. The joint loan can be provided to a veteran and one or more non-veteran individuals, or to a veteran and one or more non-veterans who will not be using their entitlement to the property. It can also be made to a veteran and a veteran spouse if both will be using their entitlement, or three or more veterans who will use their entitlement.
Many people want to use the joint-loan option with their spouse. This is possible, as we described above, but it may not always be necessary or even possible. The loan will not actually be treated as a joint loan if the spouse is not a veteran or if it is a veteran who will not be using his or her entitlement to the loan.
Also, if a you (the veteran) are planning on getting married before the loan closes, and you will take possession of the title as a married couple, the VA loan will be treated as a standard loan to a veteran and spouse, not a joint loan. This is basically to keep the process simplified.
Underwriting Considerations
There are a few considerations that all lenders and borrowers must take into account when processing a VA loan. First of all, the veteran’s credit must be satisfactory and the veteran’s income will need to be enough to repay whatever portion of the loan is allocated to them. These are typical considerations that are applied to all loans.
However, there is a different process for analyzing the portion of the loan that applies to the non-veteran who is a part of the joint loan. As before, the credit for the nonveteran must be satisfactory, but there is a difference in how their income is considered. In this case, the income of the nonveteran will be combined with the veteran when calculating loan qualification. Basically, the income strength of the veteran may be enough to compensate for the weakness of the nonveteran. However, the income strength of the nonveteran cannot be used to compensate for the income weakness of the veteran.
Guarantee and entitlement considerations also apply. The guarantee from the VA (essentially the insurance they provide) is limited only to the portion of the loan allocated to the veteran. So if the loan goes into default, the VA will only protect the lender for the amount allocated to the service member. This means that the lender must satisfy itself that the requirements of its own investor or the secondary market are enough to meet the limited guarantee.
The Procedure for Writing VA Joint Loans
There is a specific process that the lender will go through to qualify a veteran and the co-borrower. While you don’t have to be an expert, understanding the basic process will give you a better knowledge of the loan and how to qualify.
Step 1:
First, the lender will divide the loan amount by the numbers provided by the borrowers, which will create the foundation for loan qualification.
Step 2:
Next, the lender will multiply the result by the number of veteran-borrowers (not veteran and non-veteran combined) who will be using the entitlement of the loan itself. In most cases, there is only one veteran borrower on the VA joint loan, so this number will be exactly the same as before. However, if there are two VA borrowers, the number will be divided by two.
Step 3:
Now the borrower will calculate the maximum potential guarantee on the portion of the loan that was reached in Step 2, treating this portion as if it was the total of the loan. The lender then has a handbook that they can use to establish the maximum amount that can be supported by the VA.
Step 4:
Now the VA will guarantee the lesser of two amounts: either the maximum potential that can be guaranteed (as reached in Step 3), or the combined available entitlement of all veteran borrowers.
Step 5:
The VA now makes a charge to the veteran borrower’s entitlement that is available to them. If more than one veteran is involved, the VA divides the entitlement charge equally between them. If unequal entitlement is available, unequal charges may be made, but there will need to be a written agreement between the two (or more) veterans.
Joint Loans in Action: Examples
To help clarify, let’s look at an example to demonstrate how you can work out the details with your lenders.
Suppose the borrowers and available entitlement sees the veteran with $36,000 and the non-veteran with nothing. In this case, if the total loan amount is $100,000, then the veteran’s portion being $50,000 and the maximum potential guarantee is $22,500.
Get Reliable Support for a Joint VA Loan
The process can be a little complex, so make sure you have the support of an experienced, knowledgeable lending agent who understands joint VA loans!
