VA Loan Eligibility & the Debt to Income Ratio
VA Loan DTI Requirements
The VA prefers a DTI ratio of no more than 41 percent. However, loan lenders are not required to follow that rule. Therefore, various lenders’ DTI ratio requirements will probably be different for military borrowers. Since DTI ratios are a reliable indicator of financial health, lenders are reluctant to grant loans to borrowers who have a mountain of debt.
What Does Debt-to-Income Ratio Mean?
Simply simply, a borrower’s DTI ratio compares their gross monthly income to their monthly loan payments. Having some debt is normal and to be anticipated. Lenders of VA loans only consider one DTI ratio, which takes into account all monthly obligations, including mortgage payments, recurring obligations, and other unpaid bills.
Two DTI ratios are calculated for borrowers by conventional, FHA, and USDA mortgage lenders: one for housing costs alone (front-end ratio) and another that includes all significant monthly obligations (back-end ratio). The VA solely considers the borrowers’ back-end DTI ratios and disregards the front-end ratio.
Check your eligibility with today's top lenders
Compare LendersHow Do You Calculate Back-End DTI Ratios?
Simply divide your substantial monthly obligations by your gross, pre-tax monthly income to obtain your back-end DTI ratio.
Look at this illustration:
- Your gross monthly income is $4,500 since you divide your $54,000 pay by 12 to arrive at that figure.
- Debt payments include your $250 vehicle loan payment, your $850 new mortgage payment, and your $300 payment on other obligations (including credit cards and line of credit). You owe $1,400 in debt as a whole for the month.
- Your monthly gross revenue of $4,500 divided by the $1,400 in loans results in a back-end debt-to-income ratio of 31%.
The DTI gives a potential borrower’s capacity to accept a VA loan a sneak peek. A rising DTI ratio certainly tells VA loan lenders that a borrower needs to be more in charge of their finances. However, not all forms of revenue are equally counted.
Incomes and Debts VA Lenders Use for DTI
| Incomes (Pre-Taxed) | Debts |
|---|---|
|
Earned income, tips, commissions, overtime and bonuses |
Mortgage payments (current and new)
|
|
Rental property income |
Auto payments
|
|
Residual income from investments |
Credit card minimum payments
|
|
Child support and/or alimony |
Child support and/or alimony
|
|
- |
Student loan payments
|
|
- |
Co-signed credits
|
Compare top VA Lenders for $0 Down Today
Get StartedIf My DTI Ratio is High, Can I Still Get a VA Loan?
Yes, it is feasible since VA lenders consider your DTI ratio, credit history, credit score, income history, and other factors. It’s not like lenders will solely take your DTI ratio into account. They’ll take a broad view of your financial situation.
For borrowers with high DTI ratios, another option to think about is lowering your desired VA loan amount. Loan officers advise applicants to lower the amount of VA financing they are seeking, as this will bring the DTI ratio closer to a practical, reasonable level.
Control your DTI ratio by managing your debt and making wise financial decisions, but keep in mind that VA loan lenders take other factors into account.