Can You Have a Cosigner on a VA Loan?

The U.S. Department of Veterans Affairs (VA) and its lenders issued more than 400,000 home loans totaling over $144 billion in Fiscal Year 2023, so they’re obviously popular and for good reasons. You don’t need a down payment, and interest rates, closing costs and fees are low. If you qualify for one, a VA loan is a no-brainer for most military borrowers looking to buy, build, improve or re-finance a home.

But there are three key words in that last sentence: If you qualify … that you need to pay attention to. Bad debt, credit problems and meager income are three issues that could get in the way of qualifying for a VA loan.

One way to improve your chances is to find a cosigner, someone who joins you on the loan and promises to take on the payments if you can’t or don’t.

But it isn’t simple. There are restrictions on who you can use as a cosigner, and the standards for a cosigner required by the VA loan program might be different than the standards that work best for the institution lending you the money.

It can be confusing, so we’ll sort through the details.

Understanding Cosigners and VA Loans

From your perspective, a cosigner on your VA loan can be the last piece you need to complete the financing puzzle that allows you to purchase a home, or to improve on the start you’ve already made toward the American dream of home ownership. Adding a creditworthy cosigner might even lead to a lower interest rate and other desirable loan terms you wouldn’t have received otherwise.

But there are other perspectives to consider, too, including the point of view of the institution doing the lending. It’s important to know that the Department of Veterans Affairs doesn’t originate VA loans. Instead, it guarantees a private lender that it will cover some percentage of the amount of each VA loan, if necessary.

That guarantee is what allows a lender to offer more favorable terms to the borrower. Even with the guarantee, though, you still must repay the loan, so if the health of your personal finances is holding up the approval of the VA loan you want, it’s likely because the lender needs reassurance that it will get its money back. In fact, the lender might even require you to take on a cosigner because, by signing on, that person essentially promises to pay off the loan if you can’t. In that context, think of a cosigner as an insurance policy for the bank, the credit union or the mortgage company fronting money for your home.

And, of course, there’s the viewpoint of your cosigner, who won’t have a share in the property for which the money is being used but will be responsible for repaying the loan if you default on it. That involves risks, obviously. He or she can be held liable for missed payments, which can negatively impact his or her credit history and credit rating.

As you are considering bringing a cosigner on to your VA loan, it’s worth keeping the interests of all the stake holders in mind.

Eligibility for Cosigners on VA Loans

There’s a catch to the search for the right person to help you out with your application. VA loan cosigner requirements are stricter than they’d be if you were using a cosigner on a conventional or FHA loan. You won’t be able to use just any ol’ deep-pocketed friend or family member.

Your cosigner must be someone who, like you, meets the VA loan military eligibility requirements that are based on service history and duty status. Your spouse qualifies, of course, along with any unmarried member of the military who isn’t your spouse.

There are other avenues to pursue, such as a joint VA loan, but using them to cosign won’t get you far. The closer your relationship is with your cosigner, the more favorably he or she will be viewed when your loan eligibility is being assessed. The process looks especially kindly on a cosigner with strong financials who occupies, or who intends to occupy, the home with you.

But that’s just the part of cosigner eligibility that concerns the VA mortgage loan program. Your lender will apply its own financial and credit standards to a cosigner, and its standards might be different than those the VA requires. Making matters more confusing is that lender requirements are subject to state law and so can vary from state to state. The VA is federal, but its borrower requirements don’t override state law.

The VA and most lenders evaluate a cosigner’s creditworthiness in a number of areas, but these basic financial factors consistently figure into their decision-making:

• Steady income. Your cosigner will need to provide proof such as pay stubs and tax returns.
• Credit score. One of the nice features of a VA loan is that the VA itself doesn’t require a certain credit score. But most lenders do. They like to see a FICO score of at least 620 from a potential cosigner. Both you and your cosigner would be smart to do all you can in the way of improving your credit before you start the loan application process.
• Debt-to-income ratio. This is a percentage calculated by adding up all your monthly debt payments and dividing that total by your gross monthly income. Anything higher than 41% usually won’t work for a lender evaluating a cosigner.

Differences Between a Cosigner and a Co-Borrower

The key in this comparison is ownership. A cosigner doesn’t get a stake in the home for which a VA loan is being used; he or she won’t own any of it.

A co-borrower shares in the home’s equity and is listed on the ownership title. Why? Because a co-borrower also shares the responsibility for making the regular monthly mortgage payments, while a cosigner doesn’t.

A co-borrower joins you, as the primary borrower, to take out a VA loan together. A cosigner serves as your backup in the event you can’t make the loan payments yourself. The VA program allows for both approaches to obtaining a loan, but the role of a co-borrower differs slightly from a cosigner during the approval process.

A cosigner can add support to your loan application, but your credit and income are the primary considerations in its strength. Your co-borrower’s credit and income, on the other hand, carries equal weight with your own when your application is considered.

There are risks to both. If your co-borrower earns significantly less than you do, the VA and/or the lender might not be convinced of his or her future financial stability and could reject the loan application. And if you successfully bring in a co-borrower and later default on the loan, you both are fully liable and face the negative credit impact.

The VA allows up to four co-borrowers on a single loan, but they must all live in the home for which the loan is being used and (except for a non-military spouse) they all need to meet the service history or duty status required of a cosigner. However, a non-veteran who is not the primary borrower’s spouse can be a co-borrower on a joint VA loan.

Pros of Adding a Cosigner

The most obvious advantage to using a cosigner is the lift he or she can give to your VA loan application. In a sense, you use your cosigner’s healthy credit to compensate for weaknesses in your own finances, thus improving the chances you’ll get the best possible loan.

A cosigner with solid financial credentials can provide additional benefits to your VA loan, including:

• A better interest rate, potentially. The VA doesn’t set interest rates on home purchases, but its guarantee of a portion of every loan it approves gives mortgage lenders some flexibility in what they charge. VA loan rates, consequently, are consistently lower than conventional rates. Strong financials from a cosigner on a loan application increase the possibility the lender will offer a lower rate.
• A larger loan. The better the combined creditworthiness of a primary borrower and a cosigner, the more likely a lender will bump up the amount it is willing to loan.
• More favorable repayment terms. Your ability to structure your loan to fit your unique financial circumstances will be, at least in part, a function of the assurances you can give your lender that you’ll be good for the payments. A cosigner’s strong credit history will help there.
• In the end, a home of your own. That’s why the VA loan program exists. It’s meant to show appreciation for the service you’ve given to your country. If it takes a cosigner to get the VA loan that allows you to buy, build, remodel or refinance your home, then adding one is an advantage worth using.

Cons of Adding a Cosigner

You want the VA loan, obviously, and you might not get the one you need without the help of a cosigner. That means the VA and its lenders consider you a possibility to default. A cosigner can help reassure them that you’ll be good for the payments but bringing one on to your application doubles the number of people at risk if you aren’t.

Here’s how you and/or your cosigner could pay a price if the loan repayments don’t go well.

• Your cosigner will be responsible for the loan and must make any payments you miss.
• The loan amount will go on your cosigner’s credit history. If there are problems with payments, his or her credit score will suffer along with yours.
• Your cosigner takes on that risk without the benefit of a stake in the home for which the loan is being used.
• You, as the primary borrower, are allowed tax benefits from the home purchase and debt of the loan. But your cosigner isn’t.
• Your cosigner might have his or her own financial skeletons in the closet, such as an earlier cosigning arrangement that didn’t succeed. If/when the lender discovers it, your application can suffer.
• Your relationship with your cosigner could go south. In most cases, your cosigner will be someone with whom you are close. The chance that he or she will have to assume financial responsibility for a sizeable home mortgage can put unexpected pressure on that relationship.

How a Cosigner Affects Your VA Loan

If your cosigner’s credit history is strong and his or her income is steady and substantial, the impact on your VA loan can be positive. But the effect of your cosigner’s credentials won’t be direct, at least as far as the VA is concerned. Its determination of your eligibility and the amount it is willing to loan you is based solely on your own financials, not your cosigner’s credit record.

But the bank, credit union, or mortgage company lending you the money will pay attention to what your cosigner brings to the cause. That’s where and how the additional creditworthiness of a cosigner can make a difference. On that basis, you might find the lender is willing to increase the loan amount, lower its interest rate, and improve some of its other terms.

Of course, it can work the other way, too, if you aren’t careful about who you recruit to cosign for your loan. For starters, another veteran or service member as a cosigner won’t help at all if he or she doesn’t meet the minimum service requirements for a VA loan in the first place, same as you must.

Too, a lender will perform due diligence on your cosigner’s credit history as well as yours. He or she will have to provide the same documentation you do, including income verification, tax returns, debt and asset information, and other evidence of creditworthiness. If your cosigner’s history isn’t stronger than your own, you haven’t helped your case.

And remember: Your cosigner will assume responsibility for the loan payments if you, as the primary borrower, don’t or can’t make them. That means your cosigner will share the liability and negative credit implications of late payments or default.

Steps to Adding a Cosigner to Your VA Loan

Not surprisingly, there are important decisions to make about a cosigner, starting with answering this most important question: Do you need one? Take a hard look at the health of your credit and the stability of your income. If you’re comfortable that they’re sufficient, then you can go it alone through the application process. If you aren’t, then a cosigner is worth considering.

Sometimes, that decision will be taken out of your hands. If your lending institution finds your finances to be insufficient, it might require you to take on a cosigner with a stronger credit history than you’ve brought to the table.

The next step is to identify the right cosigner. The right person will be a veteran or service member who:

• Meets the minimum service requirements for a VA loan, like you do.
• Can provide documentation of a credit history and income adequate to compensate for the weaknesses in your financial profile.
• Is willing to take on the risks and responsibilities of cosigning on your loan, including assuming the payments if you can’t or don’t make them.

It should go without saying, but these aren’t decisions you need to make in a vacuum. It’s wise to discuss the advantages and disadvantages of adding a cosigner with a knowledgeable loan officer.

Making the Most of Your VA Loan with a Cosigner

A VA loan is a powerful tool. It is the most consumer-friendly mortgage option there is for service members and veterans looking to become first-time homeowners, or to improve or refinance their existing homes. One of the best features of a VA loan? You don’t need to meet all the credit requirements involved with a conventional or FHA loan. If your credit isn’t top-notch, you might still qualify.

It might mean you need to take on a cosigner, but that doesn’t have to keep you from getting the loan amount and terms that work best for your financial situation if you understand the roles and responsibilities of cosigners or co-borrowers and the impact they have on VA loans.

Too, there are several different types of VA loans, including Purchase Loans, Cash-out Refinance Loans, Native American Direct Loans, and Interest Rate Reduction Refinance Loans, as well as a very specific set of length-of-service requirements that must be met to be eligible.

It takes research to make the most of what a VA loan can do for you, with or without a cosigner. As you weigh the opportunities in front of you, be sure to consider all your options and consult with professionals who can help you make informed decisions regarding your VA loan application.