VA LOAN CAPTAIN BLOG & Learning Center

Overcoming a Co-borrower’s Low Credit Score

By: Grant Moon 05/12/15 12:42 pm

When a married couple buys a home together, they both complete the VA loan application and proceed to document the file at the request of the VA lender. Pay check stubs, tax returns and bank statements get the ball rolling. And, a credit report is pulled. VA lenders are required to verify applicants have demonstrated a responsible credit history and most VA lenders ask for a minimum credit score of 620, although some will go as low as 580 under special circumstances. But what if the credit for the coborrower is well below that 580 mark while the veteran’s score is 700? What happens?

Lenders will use the lower of the two scores and in this example, the loan application will likely be denied. There’s not a whole lot one can do about this situation. That is, unless you take the coborrower off the application completely. The coborrower will still be listed as having a legal interest in the property but not on the note. This is called a non-obligor or non-purchasing spouse in some areas.

This is a way to get around the lower score for the couple but there are a couple of issues to address. When the coborrower is removed from the application while being placed on title, as long as the veteran can qualify without the benefit of the additional income from the coborrower there should be no problem. That is, if the veteran can qualify with just one income while including the coborrower’s monthly credit obligations. The VA lender may include the coborrower’s monthly credit card payments when calculating total debt-to-income ratios. If these two hurdles can be overcome, the couple can proceed to buy the home while keeping both listed as owners on the title report.

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