Debt-to-Income Ratio for VA Loans
The debt to income ratio for VA loans needs to be 41% or less. This means that to qualify for a VA loan you need to spend less than 41% of your income on your monthly debt payments. This compares favorably to conventional loans which, on average, ask for debt to income ratios of 34% or less. If your debt to income ratio is too high to get a VA loan, the easiest way to deal with that is to pay off some of your outstanding debt.
What is a Debt to Income Ratio?
A debt to income ratio is a measurement of the percentage of your monthly income that is spent on your debt obligations. There are two types of debt to income ratios: the mortgage payment expense to income ratio, and the total fixed payment to income ratio. Your mortgage payment expense to income ratio is the percentage of your income that would be spent on payments on home loans. Your total fixed payment to income ratio is the percentage of our income that would be spent on the sum of all your debt obligations (car loans, credit card, student loans, etc.). Both types of debt to income ratios are calculated based on what those obligations would be after you acquire your new loan. For VA loans, debt to income ratio usually refers to your total fixed payment to income ratio unless otherwise specified.
What is a VA Loan?
A VA loan is a form of mortgage that is guaranteed by the US Department of Veteran Affairs (VA). The VA insures 25% of the loan, meaning that if the borrower defaults on the loan, the VA will pay back 25% of the total back to the lender. This insurance makes VA home loans much lower risk, which allows lenders to lower requirements for debt to income ratios and credit scores while providing lower rates and no down payments. VA loans are only available to those who have served in the military, or, in some cases, their spouses. If you’re thinking a VA loan might be a good option for you, you may want to go through their website to see the different options and requirements. And remember, things like DTI and credit requirements vary from lender to lender. When in doubt, it’s always good to get help from an expert or do some extra research yourself to really understand the best way to go about taking advantage of VA benefits.