What’s In Your VA Debt Ratio?
VA loans, and mortgage loans in general, determine affordability by using debt-to-income ratios. Simply put, it’s a ratio found by dividing monthly credit obligations with a borrower’s gross monthly income. The gross monthly income is easy to figure, it’s on the pay check stub before any withholdings are taken out. But with regard to debt, exactly what do VA lenders use when addressing debt?
The standard allowable VA debt ratio is at 41. This means 41 percent of a borrower’s gross monthly income can be allocated to service debt. If the ratio is higher than that, the loan might be declined. But what debts are included in that calculation?
First, debts that are not included are ones that won’t typically be found on a consumer credit report. If you allocate $100 a month for gasoline expense, that’s not going to show up on a credit report. Your utility payments aren’t on your credit report, either so payments for electricity, water and mobile phone service isn’t included in your debt ratio number.
Items that are included are credit card payments, installment and automobile loans. Student loan debt counts as well as any lease payments you might have. If you owe child support or alimony, that counts. Any debt agreement with a government agency such as the IRS then those payments will be counted as well.
One caveat here? Any debt with less than 10 months remaining is not counted against the borrower when figuring debt ratios as long as the debt is an installment loan and not a lease. Why is a lease different? As it relates to an automobile lease, at the end of the lease term, the borrower must turn in the car or buy it. A lender will want to know if the borrower plans to buy a new car and if so, what those payments might be.
If you’re not sure if a particular debt should be included in your debt ratio, simply call your loan officer who can explain what can and cannot be part of your own personal debt ratio.