Using VA Loan To Purchase Home

Added June 19, 2008 by Ilyce R. Glink

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Summary: A veteran is thinking about buying a home from his girlfriend with a loan from the Veterans Administration, or a VA loan. He wants to know whether he can use his girlfriend's income on his VA home loan application. He needs to consider not only the VA's requirements for home loans, but also the future of his relationship with his girlfriend.

Q: If I was to get a VA loan to buy my girlfriend's home could she sell it to me for less than the appraised value of the home? And if so, would her income be considered part of my total income on the VA loan?

A: According to the Veterans Administration, which backs VA loans, there is nothing in the rules that prohibits a seller from selling a home for less than the VA determined value of the property.

As far as using a girlfriend's income to help qualify for the loan, it is possible to do this, according to a VA spokesperson. "When a veteran obtains a loan with a person who is not his or her spouse, the VA is only authorized to guarantee the veteran's portion of the loan. This sometimes creates a problem for the lender."

It doesn't sound as though your girlfriend is selling you her house. It sounds like she is selling you half of the house, but you are hoping to qualify for the purchase with her. If you buy half of the house from her, and then you refinance the entire purchase, will there be enough money to pay off her old loans on the home?

There are other considerations as well. In some states, your "purchase" of your share of the home will cause you to pay transfer taxes and other costs. Your girlfriend, in some circumstances, may be considered to have sold part of the home to you for federal income tax purposes. If she has a gain from the sale of that share and she has not lived in the home for 2 of the last 5 years, she might have to pay capital gains taxes on the sale to you.

There may be other issues for you to consider and you need to sit down with a good mortgage person to go through them. You may also want to talk to a real estate attorney or estate planner to review your options in moving forward. Since you are not married, you might want an agreement between the two of you to cover the many issues that may arise if you break up -- division of the equity in the home, who would get to keep the home and forcing the person that stays in the home to refinance to pay off the old debt.

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