This ARTICLE On VA DTI Mortgage Guidelines On Maximum Debt To Income Ratios Was PUBLISHED On November 6th, 2019
VA DTI Mortgage Guidelines And Requirements On Maximum Debt To Income Ratios On VA Home Loans:
- Gustan Cho Associates are experts in VA mortgage financing
- We receive numerous phone calls every day with questions surrounding VA mortgage guidelines
- In most situations, utilizing your VA benefits will give you the best terms with buying a home
- Our brave veterans deserve a zero down payment mortgage to help their families achieve homeownership and long-term financial success
- Most lenders have mortgage LENDER OVERLAYS on their VA mortgage loans
- These lender overlays create confusion on veterans’ qualifications
- In this blog, we will detail how your debt to income ratio will be calculated for a VA loan
- We specialize in VA mortgages with higher debt to income ratios
In this article, we will cover and discuss VA DTI Mortgage Guidelines On Maximum Debt To Income Ratios.
Debt To Income Ratio Explained
Debt to income ratio on VA Home Loans:
- A lender must fully analyze your ability to repay the mortgage loan before approving your loan
- The ABILITY TO REPAY ACT was put in place on January 10, 2014
- Now lenders must verify all of the borrower’s income and liabilities
It is important to understand that there are two aspects that factor into your debt to income ratio.
VA DTI Mortgage Guidelines On Front And Back End Ratios
There is a front-end debt to income ratio and a back-end debt to income ratio. Your front-end debt to income ratio is your total mortgage (principal, interest, taxes, insurance, and any homeowner’s association dues) payment divided by your gross monthly income. The back-end debt to income ratio goes one step further, you will add your total mortgage payment (principal, interest, taxes, insurance, and any homeowner’s association dues) plus all other liabilities on your credit report divided by your gross monthly income.
VA DTI Mortgage Guidelines Versus Lender Overlays
When doing your own research on VA mortgages, you will find many lenders will tell you your max debt to income ratio is 43%.
- However, this is not the case with Loan Cabin, 43% debt to income cap is a common lender overlay
- According to the U.S. Department of Housing and Urban Development (HUD) who oversees VA loans, there is no max that income ratio requirement
- A Veteran must pass the RESIDUAL INCOME requirements for your specific region and family size
- Assuming you passed the residual income threshold, we have seen the VA mortgage is get approved with back end debt to income ratios of 65%
- We do not recommend stretching your ratios as far as you can
- We want to make sure you have a comfortable monthly payment for you and your family
- Just because you may qualify for the payment does not mean it fits your budget
All homeowners, especially first-time homeowners, should be prepared for PAYMENT SHOCK.
How Is Qualified Income Calculated By Mortgage Underwriters
How is income calculated for a VA mortgage?
When computing income for a VA mortgage, there are certain things that must be taken into account.
- The lender will use your total gross income
- This can be easy to calculate if you are an hourly or salary employee but can be much more difficult if you have variable income such as commissions or are self-employed
Please review this blog on HOW INCOME IS CALCULATED for mortgage lending.
VA Student Loan Guidelines
Student loan debt and VA mortgages:
- If you have student loan debt, this will be factored into your overall debt to income ratio
- If your student loans are currently in repayment, the lender must use payment on the credit report
- If your loans are in deferment, the VA has a strict policy on how to calculate that payment
- As long as the student loans are deferred for 12 months or longer from the closing date (FUNDING date for refinances), your monthly payment will be calculated using the following equation
Case Scenario On How Mortgage Underwriters Calculate Student Loan Debt
Here is a case scenario:
- Principal balance of student loans * 5% / 12 months = monthly payment counted against your DTI ratio
- A veteran has two separate student loans
- Student loan #1 is for $25,000 and the payments start in 6 months
- Student loan #2 is for $20,000 and that is deferred for 18 months
- Student loan #1 – $25,000 * 5% = $1,250, $1,250 / 12 months = $104.17
- Student loan #1 will have a $104,17 payment counted against your debt to income ratio
- Why would I not you know it’s perfect is exactly what I want
Student loan #2 – Since this student loan is deferred for more than 12 months after our closing date, a $0 payment will be counted against your debt to income ratio.
Qualifying For VA Loans With High DTI
If you are still reading this article, chances are you have read some contradicting information surrounding VA mortgages. This is simply because the majority of lenders have additional lender overlays on their VA mortgage loans. We have seen the debt to income ratios as high as 65% still get approved for a VA mortgage financing. Please remember, a veteran must pass their residual income thresholds no matter what their debt to income ratio may be. For any clarification on VA mortgage guidelines, please call Mike Gracz on 630-659-7644 to shoot a detailed email to email@example.com. We are available seven days a week and even on holidays. We look forward to helping you with your mortgage financing.