Veterans have the ability to secure 100% financing to buy a home. That’s great news for veterans just getting out of service that don’t have money to put down on a home. But what if a veteran wants to include a co-borrower, such as a fiancé? Will the VA Allow it?
The Issue With a Fiancé
The VA looks at spouses of veterans as equals. If you apply for a VA loan with a spouse, you still get the full guaranty, which means you don’t have to put any money down on the home. If you buy the home with anyone other than a spouse, though, you only get half of the guaranty (your half).
When it comes to a fiancé, you are kind of caught in the middle. Yes, you aren’t married, so it would put you in the 50% guaranty category, but you are about to be married, which would make you husband and wife. At that point, you should get a full guaranty.
The problem is that you aren’t married yet, so technically, the lender should treat it as a veteran and non-veteran purchase. This means that you would have to come up with a down payment equal to 25% of half of the purchase price of the home.
Getting Around the Rules
There is one way to get around the strict VA rules. If you are engaged to be married and apply for a loan before your marriage, the lender can treat the loan as if you are married. Here’s the catch, though, you can’t close on the loan until you are married. If you aren’t getting married in the near future, this obviously won’t work. You must be married before you close on the loan in order for the VA to guaranty the full amount.
What Does the Guaranty Mean?
You probably wonder what the guaranty has to do with all of this. As we described above, you would have to make a down payment and it can be hefty.
Let’s say you buy a home for $200,000 with your fiancé. Your lender will only guaranty 50% or $100,000. This means you’d need a down payment on the other $100,000 that technically belongs to your fiancé. This means $25,000. That’s a large down payment!
The guaranty lets the lender know that they will receive 25% of the amount you defaulted on should you stop making your payments. If the VA only guarantees half of the loan, though, the lender stands to take a significant loss if you default on the loan. That’s why they require the down payment. The down payment makes up for that risk.
The Best Thing to Do
The best way to go about buying a home with your fiancé and VA financing is to wait until you are about to get married. It’s okay to look at homes and even sign on a contract on one a month or so before you get married. The typical loan process takes at least 4-6 weeks. Just know that you can’t close on the loan until you are officially married. The VA will allow the loan to close with a full guaranty once you are legally married.
If you aren’t going to get married anytime soon, you may want to look at your other loan options. While you’ll need a down payment for an FHA loan, it’s only a 3.5% down payment. Of course, the VA loan has benefits in addition to the no down payment rule, such as no mortgage insurance required, but the hefty down payment requirement can be the deal breaker in that situation. Working around the program, you can buy your home and even refinance it with the VA program once you do get married.Click to See the Latest Mortgage Rates»