VA Loans With High Debt To Income Ratio

This BlOG On VA Loans With High Debt To Income Ratio Was Written By Gustan Cho

I get many inquiries by Veterans who have active Certificate of Eligibility, commonly referred as COE, who ask me can VA mortgage borrowers qualify for VA Loans With High Debt To Income Ratio. The answer to can Veteran borrowers qualify for VA Loans with high debt to income ratio is YES. VA Loans is one of the most easiest mortgage loan programs out there. Unfortunately, not everyone can qualify for VA Loans. Only Veterans who have served in the United States Military who had an honorable discharged and have a Certificate of Eligibility or COE are eligible for VA Loans. VA Loans is one of the greatest benefits the United States government rewards our Veterans for serving our country. Here are the basic VA Loan Requirements:

  • VA Loans is only available to members of the United States Armed Services who have served in the U.S. Military and have an honorable discharge with a valid Certificate of Eligibility
  • The United States Department of Veterans Affairs or VA is not a mortgage lender. The VA guarantees VA Loans that are originated and funded by private mortgage lenders and banks who are approved by the Department of Veteran Affairs or VA as long as the VA Loan they fund follow VA Mortgage Lending Guidelines. VA will guarantee the VA Lender against default and/or foreclosure of the VA Loan and any monies lost by the VA Lender
  • VA does not have a minimum credit score requirement. Minimum VA Credit Score Requirements is set by the VA Lender
  • VA does not have a maximum debt to income ratio requirement. Maximum VA debt to income ratio requirements is set the VA mortgage lender
  • VA does require VA Residual Income Requirement on VA borrowers and the Automated Underwriting System will factor the VA Residual Income of the VA borrower when rendering the automated approval per AUS FINDINGS. If the VA Borrower has sufficient VA Residual Income, VA can render an approve/eligible per Automated Underwriting System on a VA borrower with under 620 FICO Credit Scores and debt to income ratio of up to 60% DTI or even higher

Why Do Lenders Steer VA Borrowers Who Need VA Loans With High Debt To Income Ratio To FHA Loans?

There are many instances where mortgage lenders will steer VA mortgage borrowers who need VA Loans With High Debt To Income Ratio to an FHA Loan instead of a VA Loan. Why is this the case if VA Loans are easier to qualify than FHA Loans ? The main reason is because most mortgage lenders will have VA Lender Overlays on VA Loans and will not have FHA Lender Overlays . Again, if you are a VA borrower and are told that you do not qualify for a VA Loan but do qualify for a FHA Loan, please contact me at 262-716-8151 or email us at gcho@gustancho.com. We have no lender overlays on VA Loans except for a 580 FICO Credit Score Requirement. Here are typical VA Lender Overlays by mortgage lenders where they will not approve a VA Loan but will approve a FHA Loan:

  • Lender may accept a FHA Loan with a 580 FICO Credit Score but may have VA Lender Overlays on credit scores for 620 FICO
  • Lender may allow debt to income ratio of up to 56.9% DTI on FHA Loans but may cap debt to income ratio at 41% on debt to income ratio on VA Loans
  • Lender may require to pay off outstanding collection accounts and charge off accounts on VA Loans but not on FHA Loans
  • Remember that VA does not require a minimum credit score requirement and the credit score requirements are set by the mortgage lender and that is a VA mortgage lender overlay
  • Remember that VA does not have a maximum debt to income ratio cap and the debt to income ratio requirement is set by the mortgage lender
  • As long as you can get an approve/eligible per automated findings and have at least a 580 FICO score and meet or are above the VA Residual Income Requirement, you will qualify for a VA Loan

How To Get An Approve/Eligible Per Automated Underwriting System On VA Loans With High Debt To Income Ratio

All mortgage lenders will require all mortgage loan applications to be run through the Automated Underwriting System or AUS. The Automated Underwriting System is a high tech intricate automated mortgage underwriting system that analyzes all of the borrowers data and comes up with a decision on whether or not the borrower is eligible for a mortgage loan. Here are the data that the Automated Underwriting System analyzes:

  • Borrowers personal information such as date of birth, marital status, credit scores, credit history, credit payment history, public records, income, assets, liabilities and debts, collection and charge off accounts, residential history, employment history, gaps in employment, current active credit accounts, closed credit accounts, credit inquiries, and any other items on behalf of the borrower and co-borrowers
  • The Automated Underwriting System will render an approve/eligible per Automated Underwriting System, referred /eligible per Automated Underwriting System, or referred/with caution per Automated Underwriting System

What Are VA Lender Overlays And How Does It Affect Borrowers Who Need VA Loans With High Debt To Income Ratio

VA Lender Overlays are additional requirements and guidelines that are set by individual mortgage lenders that is not required by the Department of Veteran Affairs. There are no debt to income ratio requirements on VA Loans but most mortgage lenders will have restrictions on debt to income ratios like capping DTI at 41% on VA Loans. This is called a lender overlays on debt to income ratio on VA Loans by the mortgage lender and not a VA Loan requirement. That is why many Veteran borrowers get different debt to income ratio requirements. Same with credit scores. Many mortgage lenders will have minimum credit score requirements of 640 FICO and 620 FICO Credit Scores to qualify for credit scores. This is called a mortgage lender overlay on credit scores on VA Loans by the individual mortgage lender.

Borrowers who need to qualify for VA Loans with high debt to income ratio, they need to consult with a VA Lender with little VA Lender Overlays. A VA Lender with little to no lender VA Lender overlays will just go off an approve/eligible per Automated Underwriting System Findings. I recently got an approve/eligible per AUS FINDINGS on a VA borrower with a 582 FICO Credit Score and a 60% DTI income. The reason this Veteran got an approve/eligible per Automated Underwriting System is because this borrower had high residual income and the Automated Underwriting System recognized this. If you are a Veteran looking for VA Loans with high debt to income ratio and a VA Lender with little to no lender overlays contact Gustan Cho at 262-716-8151 or email us at gcho@gustancho.com. We are available 7 days a week, evenings, weekends, and holidays.

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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