VA Loan With High DTI And Bad Credit With No Overlays

This Article On VA Loan With High DTI And Bad Credit With No Overlays Was UPDATED And PUBLISHED On November 27th, 2020

Can You Qualify For A VA Loan With High DTI  And Lower Credit Scores With Prior Bad Credit:

  • VA loans is the best home mortgage program in the nation
  • Lenders can offer 100% financing with no down payment required at lower mortgage rates than conventional loans with no mortgage insurance on VA loans due to the government guarantee
  • The U.S. Veterans Affairs is the government agency that govern VA loans
  • VA will partially guarantee and insure lenders in the event borrowers default and/or foreclose on VA loans
  • Due to the government guarantee, lenders aggressively originate and fund VA loans with no down payment required and no maximum loan limit
  • VA loans have more lenient mortgage guidelines than other government loan programs
  • For example, the waiting period requirement after bankruptcy, foreclosure, deed in lieu of foreclosure, short sale is two years on VA loans versus three years on FHA and USDA loans
  • All lenders need to make sure all of their borrowers meet the minimum VA Agency Guidelines
  • However, most mortgage companies have lender overlays on VA loans
  • Lender overlays are higher lending requirements that is above and beyond the minimum VA Agency Mortgage Guidelines
  • Gustan Cho Associates is one of the very few mortgage companies licensed in multiple states with no lender overlays on VA loans

Over 75% of our borrowers at Gustan Cho Associates are folks who could not qualify at other lenders due to their lender overlays. Gustan Cho Associates just go off the automated findings of the automated underwriting system (AUS). We have zero lender overlays.

VA Agency Guidelines Versus Lender Overlays

What are the VA agency guidelines and the lender overlay

Many home buyers are told that they do not qualify for a VA Loan With High DTI by lenders. This holds true even though borrowers get an approve/eligible per automated underwriting system (AUS).

  • VA does not have a debt to income ratio requirements
  • The reason why they are told that they do not qualify for a VA Loan With High DTI is not that it is a VA Guidelines on Debt to Income Ratio but because it is the lender’s own lender overlays
  • Gustan Cho Associates Mortgage Group has no overlays on VA Home Loans
  • We do not have any minimum credit score requirements
  • Gustan Cho Associates has no maximum debt to income ratio caps
  • All we go by is the automated findings on Automated Underwriting System

In this article, we will discuss and cover qualifying for a VA loan with high debt to income ratios.

What Are Lenders Overlays On VA Home Loans

Overlays can be explained as follows:

  • The United States Department of Veteran Affairs, VA, is not a lender
  • VA is a  government agency that guarantees and insures lenders in the event borrower default and/or foreclosure on VA Loans
  • In order for VA to insure a home loan, the lender needs to follow minimum VA Mortgage Lending Guidelines
  • VA does not have a minimum credit score nor a debt to income ratio requirement
  • As long as the Veteran borrower can get an approve/eligible per Automated Underwriting System, VA will insure and guarantee loans
  • However, most lenders have overlays on VA Loans

Overlays on VA Loans are additional requirements that the lender will impose on top of the minimum VA Guidelines.

VA Agency Guidelines Versus Lender Overlays

What are the guidelines of the VA Agency versus the lender overlays

For example, if a Veteran gets an approve/eligible per AUS FINDINGS with a credit score of 550 FICO and 60% debt to income ratio, there is no reason why a lender cannot get this borrower approved and get their VA Loan closed:

  • But the lender can say no
  • Lenders can impose a higher credit score requirement
  • For example, if borrowers have 580 credit score with an AUS Approval, lenders can require 640 FICO due to their overlays
  • The lender can also set a maximum debt to income ratio requirement such as not greater than 41% debt to income ratio
  • VA does not require that the Veteran borrower pay off outstanding collection accounts and charge off accounts in order to get an approve/eligible per Automated Underwriting System
  • However, a lender can have overlays
  • Lenders can require borrower pay off all collections and charge off accounts
  • If you are told that you do not qualify for a VA Loan, please contact Gustan Cho Associates
  • We do not have any overlays on VA Loans
  • This holds true as long as borrowers can get automated approval per AUS FINDINGS

VA does have a residual income requirement.

Adding Co-Borrowers To Resolve VA Loan With High DTI

Gustan Cho Associates specializes in helping borrowers qualify for VA Loan With High DTI.

VA has different requirements on non-occupant co-borrowers and co-borrowers on VA than FHA Loans. With FHA Loans here are the requirements on co-borrowers:

  • Can add a non-occupant co-borrower or co-borrowers on FHA Loans
  • Non-occupant co-borrowers needs to be related to the borrower by law, marriage, or blood for FHA Loans

Here are the VA Guidelines on co-borrowers with VA Loans:

  • VA Loans prohibit adding non-occupant co-borrowers on VA Loans
  • VA Loans does allow married spouses to be added as co-borrower on a VA Loan

How Is Debt To Income Ratio On VA Loans Calculated

How Is Debt To Income Ratio On VA Loans Calculated

Debt to income ratio is calculated as follows by lenders:

  • DTI, or debt to income ratio, is the sum of all the borrower’s minimum monthly payments divided by the borrower’s monthly gross income

Monthly debts that are calculated are the debts that only report on the borrower’s credit report such as the following:

  • minimum credit card payments
  • minimum monthly installment loan payments
  • auto payments
  • student loan payments
  • child support payments
  • alimony payments
  • monthly payment agreements on tax liens, judgments, or other large debts with payment agreements
  • PLUS the proposed principal, interest, taxes, insurance (P.I.T.I.) of the proposed home purchase

Gross income is only qualified income that can be documented and cash income does not count:

  • Then take the sum of all monthly debts and divide it by the borrowers monthly gross qualified income
  • That yields the debt to income ratio

Monthly debts that are not included are the following:

  • utilities
  • car insurance
  • health insurance
  • child care
  • or any other debts that do not report to credit bureaus and is not on the credit report

Getting Pre-Approved For VA Loan With High DTI And No Overlays

VA does not require a maximum debt to income ratio nor credit score requirement. Borrowers told they do not qualify for a VA Loan with high DTI or overlays on VA Loans, please contact us Gustan Cho Associates at 262-716-8151 or text for a faster response. Or email us at gcho@gustancho.com. We are available 7 days a week, evenings, weekends, and holidays. We do not have any overlays on VA Loans. Gustan Cho Associates has no minimum credit score requirements or maximum debt to income ratio caps on VA loans.

1 Comment
  1. Bradley Morphis says

    I believe Gustan Cho is the right lender for me. I am a disabled veteran and a single father. I am in jeopardy of losing my home I’ve lived in for over 40 years due to back taxes. I am extremely hard working and dedicated…making every single payment on time will be my top priority. Time is running out for me. Please help me, please believe in me the way I believe in Gustan Cho.

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