This blog will discuss VA loans with high debt-to-income ratio mortgage guidelines. The team at Gustan Cho Associates gets frequently asked questions about why so many lenders have different debt-to-income ratio caps. Why does one lender cap the debt-to-income ratio on VA loans at 31% front-end and 43% back-end, and a different lender says the debt-to-income ratio is capped at 40% front-end and 50% back-end? Aren’t VA loans government loans, and don’t all lenders have the same lending requirements? The answer is NO.
get many inquiries from Veterans with an active Certificate of Eligibility, commonly referred to as COE, who ask me if Certificate of Eligibility, commonly referred to 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.
All mortgage lenders need to meet the minimum agency mortgage guidelines mandated by the U.S. Department of Veterans Affairs, commonly referred to as the VA. The Veterans Administration is the federal agency that administers VA loans for our active-duty and retired veterans. In this guide on VA loans with high debt-to-income ratio mortgage guidelines, we will cover the facts, not what you want to hear. Over 80% of our borrowers are folks who could not qualify at other mortgage lenders mainly because of the lender having layers and layers of lender overlays.
VA Loans With High Debt-To-Income Ratio With Credit Scores Down to 500 FICO
VA loans are one of the easiest mortgage loan programs to qualify for out there. VA loans have no credit score requirements, no maximum debt-to-income ratio caps, no mortgage insurance requirement, and no maximum loan limit. Gustan Cho Associates has no lender overlays on VA loans.
VA Mortgage Lender With NO Overlays
The team at Gustan Cho Associates are experts on VA loans with high debt-to-income ratio. We have closed hundreds of VA loans with high debt-to-income ratio as high as 65% DTI on VA loans. Gustan Cho Associates can do VA loans with credit scores down to 500 FICO. Unfortunately, not everyone can qualify for VA loans. Only Veterans who have served in the United States Military who had an honorably discharged and have a Certificate of Eligibility or COE are eligible for VA Loans. VA loans are one of the greatest benefits the United States government rewards our Veterans for serving our country.
VA Mortgage Requirements
The Veterans Administration has lenient mortgage lending guidelines on VA home loans. VA loans are 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 (the VA) is not a mortgage lender. The VA guarantees VA loans that are originated and funded by private mortgage lenders and banks that are approved by the Department of Veteran Affairs.
VA Agency Guidelines Versus Overlays By Mortgage Lenders on VA Loans
VA-approved mortgage lenders need to follow VA Mortgage Lending Guidelines. However, independent mortgage lenders can have higher lending requirements that are higher than the minimum guidelines set by the VA called lender overlays. The Veterans Administration has no minimum credit score requirements. The VA does not have a maximum debt-to-income ratio cap on VA loans. VA will guarantee lenders against default and/or foreclosure of the VA loan or any monies lost by the VA Lender.
What Is The Minimum Credit Score For a VA Loan?
VA does not have a minimum credit score requirement. Minimum VA Credit Score Requirements are set by the Lender. VA does not have a maximum debt-to-income ratio requirement. Maximum VA debt-to-income ratio requirements are set by the lender. VA does require VA Residual Income Requirement on borrowers.
Credit Score Guidelines To Get AUS Approval
The Automated Underwriting System will factor in the VA Residual Income of the VA borrower when rendering the automated approval per AUS FINDINGS. If Borrower has sufficient VA Residual Income, VA can render an approve/eligible per Automated Underwriting System on a VA borrower with under 620 Credit Scores. There are no debt-to-income ratio requirements for VA. Debt to income ratio of up to 65% DTI or even higher is often approved.
Why Do Lenders Steer 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 for than FHA Loans? The main reason is that most 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 an FHA Loan, please contact me at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com. We have no lender overlays on VA Loans.
Lender Overlays On FHA Versus VA Loans
We will discuss typical VA lender overlays by mortgage lenders where they will not approve a VA loan but will approve an FHA loan. The lender may accept an FHA loan with a 580 Credit Score but may have VA Lender Overlays on credit scores of 620. The lender may allow a debt-to-income ratio of up to 56.9% DTI on FHA Loans but may cap the debt-to-income ratio at 41% on debt to income ratio on VA loans.
VA Loans With High Debt-To-Income Ratio with Collection Accounts
The 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. Credit score requirements are set by the mortgage lender and that is a VA mortgage lender overlay.
Gustan Cho Associates recently closed a VA loan with a 543 FICO credit scores with a 63% debt-to-income ratio with a manual underwrite. VA and FHA loans are the only two mortgage loan program that allow manual underwrite.
Remember that the VA does not have a maximum debt-to-income ratio cap. Debt-to-income ratio requirement is set by the mortgage lender. As long as veteran borrowers can get approve/eligible per automated findings and have at least a 580 score and meet or are above the VA Residual Income Requirement, they should get AUS Approval on VA loans.
How To Get an Approve/Eligible Per AUS 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 The AUS comes up with a decision on whether or not the borrower is eligible for a mortgage loan.
The findings of the automated underwriting system will analyze every data entered. The automated underwriting system has every aspect of the agency mortgage guidelines and can render automated findings within seconds. The key to getting an approve/eligible per automated underwriting system is to have timely payments in the past 12 months with no late payments and strong residual income.
You can have outstanding collections, charge-offs, prior bad credit, and credit scores down to 500 FICO. However, if your credit is clean and you have been paying all your monthly debts on time for the past 12 months, you should get an AUS approval. Of course, this is dependent on your income.
How The AUS Analyzes Data on VA Loans With High Debt-to-Income Ratio
Here are the data that the Automated Underwriting System analyzes. Borrower’s personal information such as the following:
- Date of birth
- Marital status
- Credit scores
- Credit history
- Credit payment history
- Public records
- Income
- Assets
- Liabilities and debts
- Collection
- Charge off accounts
- Residential history
- Employment history
- Gaps in employment
- Current active credit accounts
- Closed credit accounts
- Credit Inquiries
- Any other items on behalf of the borrower and co-borrowers
Automated Underwriting System Findings For VA Loans With High Debt-To-Income Ratio
The Automated Underwriting System will render the following:
- Approve/eligible per Automated Underwriting System
- referred /eligible per Automated Underwriting System
- Referred/with caution per Automated Underwriting System
Overlays of Lenders For VA Loans With High Debt-To-Income Ratio
VA Mortgage Lender Overlays are additional requirements and guidelines that are set by individual mortgage lenders that are 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.
The additional lending requirements above and beyond VA agency guidelines by lenders is called a lender overlay on debt to income ratio. The higher debt-to-income ratio requirement on VA Loans by the mortgage lender and not a VA Loan requirement is by a lender with overlays.
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 and 620 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. Gustan Cho Associates has no overlays on VA loans.
Getting Approved For VA Loans With High Debt-To-Income Ratio With Lender With No Overlays
Borrowers who need to qualify for VA loans with high debt-to-income ratio, need to consult with a VA Lender with No 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 approve/eligible per AUS FINDINGS on a VA borrower with a 582 Credit Score and a 60% DTI income. The reason this Veteran got approve/eligible per Automated Underwriting System is because this borrower had a high residual income and the Automated Underwriting System recognized this.
Not All Lenders Have The Same Requirements on VA Loans With High DTI
Gustan Cho Associates, empowered by NEXA Mortgage, LLC, are mortgage brokers licensed in 48 states including Washington, DC, Puerto Rico, and the U.S. Virgin Islands. The team at Gustan Cho Associates has a national reputation of being able to do mortgage loans other lenders cannot do.
Gustan Cho Associates has a strong close lending network of 210 wholesale mortgage lenders. Dozens of wholesale lending partner have zero lender overlays on VA loans. Our loan officers are trained to be able to work the toughest challenging files and to get them closed.
Over 80% of our borrowers at Gustan Cho Associates are folks who could not qualify at other lenders due to their lender overlays. Borrowers looking for VA loans with high debt-to-income ratio and a VA Lender with no lender overlays please contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com. We are available 7 days a week, evenings, weekends, and holidays.
This blog on VA loans with high debt-to-income ratio was edited on January 17th, 2023
January 17, 2023 - 7 min read