It has been well documented that the VA Home Loan program is by far the most beneficial loan program available. Why? There are reduced closing costs, no down payment requirements, and no mortgage insurance requirements. Therefore, those who are eligible for a VA Loan have significantly less obstacles in their path to homeownership than anyone else.
How can the VA Loan program offer veterans such a smooth home buying route?
You see, mortgage companies, banks, and lenders have to follow the VA Department’s loan guidelines. These guidelines provide the loan guarantee if the veteran were to default on their mortgage. The loan guarantee ensures that the lending institution will get reimbursed up to 25% of the original loan amount in the event of a foreclosure. This is the only reason banks are willing to lend money to a veteran without requiring a down payment. In essence, the VA Department acts as an insurance policy if the loan goes bad.
As fine of a program as it is, there are some limitations to discuss…
Unlike their Conventional & FHA loan counterparts, the VA only allows the income of the veteran and veteran’s spouse to be used for qualifying purposes and thus, the ability to take advantage of the no down payment benefit of the program. In other words, say there is a veteran who can’t qualify for a particular home with her income, is not married, and does not want to purchase the home with another veteran. She simply cannot make that purchase using a VA Loan.
Well, sort of. Keep reading.
There’s a secret that most people (even lenders) do not know…
The VA has one caveat to this rule that gives an additional option to veterans who find themselves unable to qualify for a purchase price.
Herein lies the secret: the veteran who is not married and cannot qualify on her own COULD technically use the income from her fiance (or parent, sibling, child, etc.) to qualify for that higher loan amount and purchase price.
However, in order to use non-spousal or non-veteran income, two additional requirements must be satisfied:
- a minimum of 12.5% down payment made towards the purchase, and
- the non-veteran, non-spouse used to qualify intends to reside at the residence along with the veteran.
So you’re saying there’s a chance?!
Yes, indeed. If we use any income to qualify that does not come from a veteran or a veteran’s spouse, the VA will guarantee 12.5% of the loan, which means the additional 12.5% guarantee required by the lender would have to come in the form of a down payment.
Additionally, VA does not allow for “non-occupying co-borrowers.” Therefore, the income used for qualifying for the loan amount would have to come from someone living in the residence.
Here are a few options of how this could be applied:
- Veteran uses income from their fiance
- Veteran uses income from child or children
- Veteran uses income from their parent
- Veteran uses income from their sibling
There you have it! The secret’s out. As long as a 12.5% down payment is made and the additional party occupies the residence with the veteran, you can do a VA Loan!