VA helps Servicemembers, Veterans, and eligible surviving spouses become homeowners. As part of our mission to serve you, we provide a home loan guaranty benefit and other housing-related programs to help you buy, build, repair, retain, or adapt a home for your own personal occupancy.

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VA Loans and Debt-to-Income Ratios

VA lenders look closely at your debt-to-income ratios. Along with your credit score, it’s the best indication of what you can afford. If you already have a large amount of debt, adding a mortgage may put you under financial distress, and that’s the last thing the VA wants.

The VA prefers it if borrowers have a 41 percent or lower DTI. This along with meeting the VA’s disposable income guidelines is what the VA credits its low foreclosure rate to, as they have the lowest foreclosure rate among all loan programs.

What is a Debt-to-Income Ratio?

Your debt-to-income ratio is the comparison of your monthly debt compared to your monthly income before taxes. If your debts take up more than 41 percent of your income, the VA feels it puts lenders at risk of foreclosure. If lenders accept DTIs higher than 41 percent, the VA requires them to ensure the borrower has extra disposable monthly income.

The VA doesn’t expect borrowers to be without debt – everyone has debt as it’s a part of life. But, they don’t want veterans to stretch their finances so much that they can’t afford the daily cost of living. The VA only focuses on your total debt ratio or the debt ratio comparing your new mortgage payment plus all existing monthly debts to your monthly income. Some loan programs, like FHA and USDA loans, look at your front-end or housing ratio too. This compares just the new housing payment to your gross monthly income.

Figuring out Your Debt-to-Income Ratio

It sounds complicated, but determining your debt-to-income ratio is simple. You’ll need two figures:

  • Your gross monthly income – If you earn a salary, divide your annual salary by 12 and you have your gross monthly income. If you have income other than an annual salary, annualize it and divide by 12, giving it your best estimate if you work hourly or on commission.
  • Your total monthly debts – Add up debts that show up on your credit report. This includes car loans, student loans, personal loans, lines of credit, and credit cards (minimum payment only). Add this amount to the new mortgage payment for your total monthly debts or the amount you pay out each month.
  • Take the total debts and divide them by your gross monthly income and you have your back-end debt-to-income ratio which the VA uses.

Keep in mind, you may have income you earn in addition to your ‘regular job.’ Part-time jobs you’ve held for at least one year, commissions, bonuses, real estate income, child support, or investment income all count toward your gross monthly income as long as you can prove regular and consistent receipt of the income.

What Debt-to-Income Ratio do VA Loans Require?

As we said above, the VA prefers a debt ratio of 41 percent or lower. But this varies by lender. Some lenders allow higher DTIs and others prefer lower debt ratios. If you have a debt ratio much above 41 percent, lenders may allow it if you have good credit and have adequate disposable income.

Every borrower has a disposable income requirement they must meet to qualify for the loan. But, if your debt ratio exceeds the 41 percent threshold, you may qualify if you have more than the required disposable income. Your disposable income is the money you have at the end of the month after paying your bills. A large amount of disposable income shows lenders (and the VA) that you can responsibly handle the higher debt amounts without sacrificing your daily needs./p>

Getting a VA Loan with a High DTI

Don’t think you’re automatically ineligible if you have a higher DTI. There are a few ways around it. The easiest way is if you have great credit and plenty of disposable income. But, if you don’t, I can play around with the numbers, coming up with the right loan amount that gets your debt ratio right at 41 percent, allowing lenders to give you a loan.

I’ve worked with veterans in many situations, helping them secure the home financing that is right for their budget and gets them the approval needed to buy their dream home.

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