All parties on the mortgage will have to meet VA and lender requirements if considering purchasing a home using the VA home loan benefit, including your spouse.
Married couples often pursue a VA home loan together, with each obliged on the mortgage note.
There are a host of reasons why, but one of the simplest is that a spouse may not have enough income to purchase the home of their dreams on his or her own. Adding in that second income of a spouse can sometimes do wonders for your purchasing power and debt-to-income ratio.
While counting a spouse’s income is a big benefit, there’s also a potential downside to having a co-borrower – lenders will consider that person’s credit and debts, just like they will yours. So what if your spouse has bad credit?
And here’s the rub. All parties on the mortgage will have to meet VA and lender requirements. The VA mandates that borrowers be a “satisfactory credit risk” but offers no strict credit criteria. Lenders, on the other hand, will usually have a minimum credit score benchmark. That cutoff can vary by lender and loan type, but it’s often a 620 FICO for VA loans.
So if you have a 700 score but your spouse is in the low-600s, you’re going to be on the outside looking in, at least until your spouse gets that score to the 620 level.
Lenders can’t take an average of the scores or just shuffle an application along; those credit score benchmarks have no give when there’s someone with bad credit on the loan.
There are a few ways to combat the problem. One is to see if you can get preapproved for the desired loan amount without your spouse’s income. In some cases that will cure the problem immediately. But many other prospective borrowers won’t be so lucky.
For those couples, diving headfirst into the credit issue may be the best solution, even if it throws off your home buying schedule. In addition, the interest rates you get quoted are usually based on the lower of the two scores. That’s an added incentive to work hard on your credit before you start the home buying journey.
Prospective borrowers who come to Veterans United Home Loans and can’t quite clear the credit hurdle will turn to our Lighthouse Program for help.
This is a unique wing of the company that offers a free service where consultants like Carla Blair-Gamblian team up with future military homeowners and help them develop a plan to boost their credit. You can read more about Lighthouse and its incredible credit experts or contact them right away at 888-392-7421. You can also contact me anytime via email.
A VA loan is a mortgage option issued by private lenders and partially backed, or guaranteed, by the Department of Veterans Affairs. Here we look at how VA loans work and what most borrowers don’t know about the program.
VA loans allow Veterans to have a co-borrower on the loan. Here we break down co-borrower requirements and provide common scenarios around co-borrowing and joint VA loans.