A VA loan is a mortgage loan guaranteed by the Veterans Administration. There are numerous mortgage guidelines for a VA mortgage. I wanted to list some of the more important ones below, but you always need to speak to an experienced mortgage loan officer and have them discuss your specific circumstances as there are many other things to consider in addition to the below.
The VA residual income requirement looks at the discretionary income leftover after deducting all debts and obligations. The VA wants to make sure you can cover living expenses such as food, health care, clothing, and utilities.
The Veterans Administration requires mortgage lenders to document that VA mortgage applicants can show a minimum residual income, which varies based on the veteran’s geography and household size. Speak to a mortgage loan officer to find out what your residual income requirement is in your area for your household size.
Even if you have a high credit score and a low debt to income ratio, if you cannot meet the VA residual income requirements you will not get approved for a VA mortgage.
A VA mortgage, unlike an FHA mortgage or Conventional mortgage, requires mortgage lenders to consider child care in the debt-to-income ratio. This is important to note. If you have children and you pay a monthly amount for childcare, that monthly amount is considered to be a debt not unlike a car loan or student loan.
VA’s debt-to-income (DTI) ratio compares monthly debts to monthly income. The DTI is a ratio of total monthly debt payments such as your housing expense, installment debts like school loans and car loans, minimum monthly credit card payments, and other debt compared to gross monthly income. Below is an example:
Debts: $2,500/month new mortgage payment, $300/month car loan, $200/month school loan, $50/month minimum monthly credit card payment. This totals $3,050/month in debts.
Income: $10,000 month in income
* Non-Taxable income may be “grossed up” for purposes of calculating the debt-to-income ratio, but not for residual income calculations.
Divide: Debt by Income = Debt-to-Income Ratio
DTI: $3,050 / $10,000 = 30.5% DTI
The “Debt-to-Income Ratio” requirements of lenders can vary. The VA would like to see 41% DTI or less. And some lenders have higher tolerance for DTI than others and are comfortable going to 45%, even 50%. The VA’s debt-to-income ratio is a guide and it is secondary to the residual income. DTI should not automatically trigger approval or rejection of a loan. However, a DTI higher than 41% requires closer scrutiny and compensating factors.
Compensating factors can include the below:
- excellent credit history,
- conservative use of consumer credit,
- long-term employment,
- significant liquid assets,
- sizable down payment,
- high residual income,
I hope this helps veterans understand some of the basics in getting a VA mortgage, if you would like to get pre-approved for a VA mortgage please click here or go back to my homepage and click on the blue button that says “GET PRE-APPROVED”.