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VA Home Loans and Debt to Income Ratio

By: Grant Moon 05/02/12 08:49 pm

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All eligible veterans can apply for VA guaranteed home loans using their VA loan eligibility certificate as proof with VA approved lenders. However, one major factor that has to be taken into consideration along with the VA loan eligibility criteria is the Debt to Income Ratio (DTI). For any eligible veteran applying for a VA loan, the DTI should be below 41% of their monthly income.

Debt to Income Ratio is the ratio of your monthly debts to your total monthly income. In other words, it is the percentage of the total monthly income that is paid towards monthly debt bills. The following steps will help you to calculate your DTI:

  1. Work out the cash required to pay off monthly debt bills, such as credit card bills, educational loans, tax, car loans and so on.
  2. Calculate your monthly earnings.
  3. Divide the total monthly debt payments by total monthly earnings and multiply it by 100. You could be eligible for a VA loan if the percentage is 41% or less.

For example, if your annual income is $60,000, divide this amount by 12 to get your monthly earnings, that is $60,000/12 = $5000.

Multiply this with 0.41(the required DTI), that is, 0.41*$5000=$2050. In this example if you pay out less than $2050 then you are below the debt to income ratio threshold.

The VA loan underwriter does have some discretion if your DTI is above 41% but must have justifiable reasons to do so. It is always wise to keep a low DTI while applying for a VA home loan. This will help to ensure that you can make your VA loan mortgage payments on time as well as reduce your financial strain.

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