VA Loan Debt Ratio Requirements
Part of the VA loan approval process when buying a home, various factors are taken into consideration. A timely credit history must be established, steady income and debts need to be verified and a debt ratio needs to be calculated. The VA debt ratio requirement is 41.
The VA debt ratio is calculated by dividing monthly debt with gross monthly income. For instance, if the new mortgage and car payment add up to $2,000 and gross income is $6,000, the debt ratio is 2,000 divided by 6,000, or .33. The debt ratio is 33 in this example, well below the 41 maximum allowed.
But what is included in monthly debt? The first to be included is the mortgage payment, including the principal and interest amount, property tax and insurance escrow payments and any homeowner’s association or condominium fees.
Other debt is also included such as automobile payments, student loan payments and installment loans. The lender will use the minimum amount required by the creditor and not the amount actually paid by the borrower. For instance, a car payment is $300 per month but the borrower regularly pays $400 to help pay off the auto loan sooner. The VA lender uses the $300 amount, not the amount actually paid.
Installment loans are loans with a regular monthly payment that gradually pays off the loan balance over time. If a veteran buys a new washer and dryer for $2,000 and pays it off in equal installments of $408 per month over four years, the lender will count $408 toward the debt ratio. One caveat here, if the installment loan has less than 10 months remaining, the lender may not count the monthly debt, assuming the loan will be paid off and not replaced with another washer and dryer. The minimum monthly payments toward credit card debt are also included in debt ratios as well.
Finally, if the borrower pays any child or spousal support, the monthly support payments are counted as long as there are at least 10 months remaining. Other debts such as bills for utilities or cell phone or groceries don’t count. Only debt that is can appear on a borrower’s credit report.