Can I Qualify for a VA Loan if I Co-Signed on a Car Loan?
So I got this question from T.T., was the initials of the person that left this question.
He basically says that he was denied for a VA loan because of a charge-off on an automobile loan that he had co-signed for in the past.
Now the car was in an accident and it was totaled. But the veteran here, T.T., has got their own car. They’ve never been late, they’re six months until they pay it off and they were wondering if they should have gotten a manual underwrite.
Well, I don’t have enough information to be able to give you an answer with 100% accuracy or with 100% confidence, but there a couple of things that I’m curious about here that should be looked at.
Now, first of all, VA has a rule, and most underwriting guidelines have a rule called a contingent liability rule. And a contingent liability is very similar to this type of a situation where if you’ve co-signed for someone else.
Now what the VA guidelines say is that if there is evidence that the loan payments were being made by someone else, and not you, and you can show a history of those payments being made by someone else, and if there’s no reason to believe that you would have to repay this loan.
Now, this situation is unique, obviously, because it’s charged-off, so the lender is no longer collecting.
Which means that I don’t see a scenario where you would be required to participate in repaying this loan.
And then if you can show that those payments on the loan that you co-signed for, up to the accident and the car gets totaled.
If those were paid on time, this is absolutely something that I think you could do a manual, a VA manual underwrite on.
VA is very, very flexible, especially if we can show that this wasn’t neglect or something that was in your control.
The Veterans Administration will go out of its way to make sure to look at scenarios like this and really judge the veteran for the veteran’s history.
Under the contingent liability rules, I don’t have enough information to know if you’re going to fall there. But I am concerned that potentially this lender either
A) doesn’t have enough experience to know to dig a little bit deeper and contact the VA and go through this scenario with them.
Or B) potentially you’re working with one of these big box VA lenders that advertise on TV that do not have the experience or the ability to do manual underwriting on the loans.
So, I’m with you 100%. I do think that you should be able to get around that charge-off. I do not know that 100%.
But this is something that I would absolutely fight for 100%.
I would fight for until I got an answer. I’d take this thing all the way down the line. All the way up to VA and I would run it by them and see if we could get this signed off. If that was even necessary.
I think a good VA underwriter would look at this scenario and be able to make a decision. So again, I don’t have enough detail to know if this was the only thing that was possibly preventing you from getting your loan denied.
But it does raise red flags for me and it does not sound like they worked as hard as they should have.
So, contingent liability, something happens on something that you co-signed for. If we can prove that somebody else. . .
Now the default part, that gets a little bit complicated, I’ll admit. But it seems like there’s a good story with this.
Now typically if you co-sign for somebody, especially if it’s a VA loan, or any loan actually, and they start missing payments, you could be on the hook for that.
But if you co-signed for somebody and let’s say they’re trying to calculate it into your debt-to-income ratio. That’s a common scenario.
Again, if you can prove that the other person who’s responsible for this, and you just co-signed for them if you can show that they’ve been making the payments on time and it’s still on your credit.
You need to exclude that payment when calculating your debt-to-income ratio, you can absolutely do that.
So, if you run into a similar situation like this, if you’ve co-signed on somebody else’s debt, now if they’ve defaulted and missed a bunch of payments, you might be on the hook.
If they’ve been paying it on time, or in a situation like this where the car was totaled and something happened to it.
Both of those situations are something that I think that you could probably get around. And it may require a manual underwriter to take a look at the VA loan and manually underwrite it.
I think both of those types, I think this scenario is something that could absolutely be overcome.
So I would encourage you to talk to somebody that has the ability to do manual underwriting.
At the very least, I would get a second opinion and see if potentially, even under the contingent liability guidelines, if you could have this removed from consideration for you trying to qualify for your own loan.
So, I hope this helps and thank you for your Service.