VA Joint Loan Answers: Credit Issues
When two or more veterans apply for a VA loan together, both or all of the applicants using their VA loan entitlements, the transaction is known as a VA joint loan. There are many reasons why more than one veteran might want to team up on a VA mortgage, but there are some issues to be aware of when applying for a VA mortgage loan in this way.
All veterans using their entitlement on the loan are required to certify they will use the property as their primary residence. VA loan occupancy rules in this area are clear. And in the same way that each veteran is bound equally by occupancy, there’s also an important credit requirement that also applies equally to all veterans on the loan.
Each applicant must have sufficient credit in the form of good repayment history, acceptable FICO scores, etc. VA loan rules do not allow a borrower to compensate for another borrower’s insufficient credit score or poor repayment history.
These issues are addressed in VA Pamphlet 26-7, Chapter Seven, which instructs the lender processing the VA loan. It says:
“Consider the credit and combined income and assets of both parties. Strengths of one veteran related to income and/or assets may compensate for income/asset weaknesses of the other. However, satisfactory credit of one veteran cannot compensate for the other’s poor credit.”
Additionally, Chapter Seven says, “Veteran’s credit must be satisfactory and veteran’s income must be sufficient to repay that portion of the loan allocable to the veteran’s interest in the property.”
When it comes to joint loans between a veteran and non-veteran, VA loan rules are similar. Chapter Seven advises the lender, “A different analysis applies to the portion of the loan allocable to the nonveteran. The credit of the nonveteran must be satisfactory. However, the combined income of both borrowers can be considered in evaluating repayment ability.
In other words:
- Income strength of the veteran may compensate for income weakness of the nonveteran, but
- Income strength of the nonveteran cannot compensate for income weakness of the veteran in analyzing the veteran’s ability to repay his or her allocable portion of the loan.”
Borrowers should consider these rules carefully when in the planning stages of a home loan application. Fixing or addressing credit issues is a very important part of making a successful VA loan application whether it’s for a single borrower or multiple co-borrowers on the loan.
Do you have questions about VA mortgages? Ask us in the comments section.