This is another blog post with information that is important to reviewing in your VA loan file.
VA loans are a great way to assist Veterans. The posts are taken from my VA loan handbook that I share with Realtors who attend my VA for Realtors Course. Please feel free to contact me with any questions regarding VA loans. You can also go to the VA web site for additional information. It is on my blog roll.
VA Loan Debt Ratio Calculation
According to VA guidelines, borrowers and / or their spouse must qualify according to set debt ratios which are used to determine whether the borrower can reasonable be expected to meet the expenses involved with home ownership.
TOTAL FIXED PAYMENT TO EFFECTIVE INCOME
Add up the total mortgage payment (principal and interest, escrow deposits for taxes, hazard insurance, homeowners' dues, etc.) and all recurring monthly revolving and installment debt (car loans, personal loans, student loans, credit cards, etc.). Then, take that amount and divide it by the gross monthly income. The maximum ratio to qualify is 41%. In the event the number exceeds the 41%, the VA has a residual income guideline which can allow approval, yet are not considered a compensating factor.
Example:
Total Amount of New Housing Payment | $650.00 |
Total Amount of Revolving Debt | $300.00 |
Total Monthly Recurring Debt | $950.00 |
Borrowers Gross Monthly Income | $2,400.00 |
Dive House Payment by Income | $950/$2400 |
Debt to Income Ratio | 39.58% |
Please note that the above indicators do not exclusively determine whether or not a veteran will qualify for a VA loan. Compensating factors may affect the loan decision. These factors are especially important when reviewing loans which are marginal with respect to residual income or debt-to-income ratio. They cannot be used to compensate for unsatisfactory credit.
Some compensating factors include, but are not limited to the following:
- Excellent credit history
- Conservative use of consumer credit
- Minimal consumer debt
- Long-term employment
- Significant liquid assets
- Military benefits and more
VA loans are underwritten and approved by the lender. The VA reviews the file and then issues the loan guaranty. If you feel strongly about a loan exception, make sure you provide documentation for the compensating factors you are using. The VA will provide a guaranty if the documentation supports your reason to go outside of guidelines.
Best of luck helping America's finest and bravest.
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John - again, great stuff! I love being able to direct my VA buyers to some solid information that I know they can understand. Keep up the great work.