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.
We frequently receive inquiries from Veterans with an active Certificate of Eligibility (COE), wondering if VA mortgage borrowers qualify for VA loans with high debt-to-income ratio. The answer to whether Veteran borrowers can qualify for VA loans with high debt-to-income ratio is YES.
To secure VA loans with high debt-to-income ratio, mortgage lenders must adhere to the essential agency mortgage guidelines set forth by the U.S. Department of Veterans Affairs, known as the VA. This federal agency oversees VA loans, supporting active-duty personnel and retired veterans.
In this comprehensive guide focusing on VA loans with high debt-to-income ratio mortgage guidelines, we’ll present the objective facts, steering clear of any wishful thinking. A significant portion of our borrowers—more than 80%—belong to the category of individuals who faced challenges in qualifying with other mortgage lenders primarily due to numerous lender overlays.
VA Loans With High Debt-To-Income Ratio With Credit Scores Down to 500 FICO
VA loans with high debt-to-income ratios are among the most accessible mortgage programs available. They boast no credit score prerequisites, no caps on maximum debt-to-income ratios, no mandatory mortgage insurance, and no upper limit on loan amounts. Gustan Cho Associates maintains a policy of no lender overlays on VA loans.
VA Mortgage Lender With NO Overlays
At Gustan Cho Associates, we specialize in facilitating VA loans with high debt-to-income ratio. Our track record includes successfully closing numerous VA loans, with DTI ratios reaching as high as 65%. We can help individuals with a credit score as low as 500 get VA loans.
However, it’s important to note that VA loans are exclusively available to Veterans who have served in the United States Military, received an honorable discharge, and possess a Certificate of Eligibility (COE). These loans stand as one of the most significant benefits bestowed upon our Veterans by the United States government in recognition of their service to our nation.
VA Mortgage Requirements
The Veterans Administration offers flexible mortgage lending criteria for VA home loans. These loans are exclusively accessible to individuals who have served in the United States Armed Services, boasting an honorable discharge and a valid Certificate of Eligibility.
It’s important to note that the United States Department of Veterans Affairs (VA) does not engage in mortgage lending activities. Instead, the VA is a guarantor for VA loans, which are originated and funded by private mortgage lenders and banks sanctioned by the Department of Veteran Affairs.
VA Agency Guidelines Versus Overlays By Mortgage Lenders on VA Loans
Mortgage lenders approved by the VA must adhere to VA loans with hight debt-to-income ratio mortgage lending guidelines. Nevertheless, non-affiliated mortgage lenders may impose more stringent lending criteria, known as lender overlays, exceeding the VA’s minimum guidelines.
The Veterans Administration does not establish a minimum credit score requirement. Moreover, VA loans do not have a maximum debt-to-income ratio cap. The VA provides lenders with guarantees against default or foreclosure on VA loans and any financial losses incurred by the VA Lender.
What Is The Minimum Credit Score For a VA Loan?
VA loans do not impose a minimum credit score requirement; instead, the lender determines this criterion. Similarly, there is no specified maximum debt-to-income ratio set by the VA, as lenders establish these limits. However, VA does mandate a Residual Income Requirement for 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?
In numerous scenarios, mortgage lenders may guide VA mortgage borrowers seeking VA loans with high debt-to-income ratio toward FHA loans instead of VA Loans. Despite VA Loans generally being easier to qualify for compared to FHA Loans, this redirection occurs primarily due to VA lender overlays present on VA Loans, whereas FHA lender overlays are typically absent.
If you’re a VA borrower encountering this situation, and you’re informed that you don’t meet the criteria for a VA Loan but do for an FHA Loan, please reach out to us at 800-900-8569 or text for a quicker response, or email at firstname.lastname@example.org. We operate without 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
- Liabilities and debts
- 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 email@example.com. We are available 7 days a week, evenings, weekends, and holidays.
FAQs on VA Loans With High Debt-To-Income Ratio Mortgage Guidelines
1. Why do different lenders have varying debt-to-income ratio caps on VA loans? Lenders may impose different debt-to-income ratio caps on VA loans due to their lending criteria, known as lender overlays. While the U.S. Department of Veterans Affairs (VA) sets essential agency mortgage guidelines, lenders may have additional requirements influencing the debt-to-income ratios they accept.
2. Are all VA loans governed by the same lending requirements since they are government loans? No, VA loans are subject to lender overlays, which can vary among mortgage lenders. While the VA establishes minimum guidelines, individual lenders may enforce additional criteria, such as debt-to-income ratio caps and credit score requirements.
3. Do Veterans with an active Certificate of Eligibility (COE) qualify for VA loans with high debt-to-income ratio? Yes, Veterans with an active COE can qualify for VA loans with high debt-to-income ratios. However, they must meet the essential agency mortgage guidelines the U.S. Department of Veterans Affairs set forth.
4. What are the advantages of VA loans with high debt-to-income ratio? VA loans with high debt-to-income ratios offer several benefits, including no minimum credit score requirements, no caps on maximum debt-to-income ratios, no mandatory mortgage insurance, and no upper limit on loan amounts. Some lenders, like Gustan Cho Associates, operate without lender overlays on VA loans, facilitating smoother approval processes.
5. How do lenders determine eligibility for VA loans with high debt-to-income ratio? Lenders assess eligibility for VA loans with high debt-to-income ratios through the Automated Underwriting System (AUS). The AUS analyzes various borrower data, including credit history, income, assets, and liabilities, to render approval decisions based on VA guidelines and lender overlays.
6. Why might lenders steer VA loans with high debt-to-income ratio toward FHA loans? Lenders may redirect VA borrowers to FHA loans due to VA lender overlays, which can impose stricter requirements compared to FHA loans. Despite VA loans generally being easier to qualify for, lender overlays on VA loans may necessitate alternative loan options for borrowers.
7. How can borrowers ensure approval for VA loans with high debt-to-income ratio? To increase the likelihood of approval for VA loans with high debt-to-income ratio, borrowers should consult with VA lenders who have minimal or no lender overlays. Maintaining timely payments, demonstrating strong residual income, and meeting VA guidelines are crucial for securing approval through the Automated Underwriting System.
8. What are VA mortgage lender overlays, and how do they impact debt-to-income ratio requirements? VA mortgage lender overlays are additional requirements set by individual lenders, exceeding VA agency guidelines. These overlays may include specific debt-to-income ratio caps, credit score requirements, and other criteria. Borrowers should be aware of lender overlays when applying for VA loans.
9. Can borrowers with lower credit scores qualify for VA loans with high debt-to-income ratio? Yes, borrowers with lower credit scores, including scores as low as 500 FICO, may still qualify for VA loans with high debt-to-income ratios. While credit scores are a factor, meeting residual income requirements and securing an approve/eligible status through the Automated Underwriting System are crucial for approval.
10. How can borrowers find VA lenders with minimal or no lender overlays? Borrowers seeking VA loans with high debt-to-income ratios should research and consult with VA lenders known for minimal or no lender overlays. Working with reputable lenders, like Gustan Cho Associates, who prioritize VA loan accessibility and adhere to VA guidelines, can streamline the approval process.
This blog about VA Loans With High Debt-To-Income Ratio Mortgage Guidelines was updated on February 15th, 2024.