Debt to Income Ratio for VA Loan
Debt-to-income ratios determines whether you qualify for VA loans. VA loans are eligible for debt-to-income ratios of up to 41%. According to general definitions, the debt-to-income ratio is the percentage of your monthly gross income that is used to pay off debt. It is actually the ratio between your gross monthly income and your monthly debt obligations.
Calculate the amount you spend on house maintenance, taxes, insurance premiums, car loans, credit card bills, educational loans, etc. Afterward, determine the amount you earn on a monthly basis. Using a calculator, determine your debt-to-income ratio. There are different regulations for each state so be sure to see VA loan in Georgia blog post for more info on GA.
How to Calculate DTI for VA Loan
The debt ratio is calculated by dividing the household income by the overall monthly debt. In the example above, if the gross monthly income is $8,000 and housing payments plus student loan payments and auto loan payments add up to $3,000, then the debt ratio is $3,000 / $8,000 = 37.
Over the years, the VA has employed a maximum debt ratio guideline set at 41 percent. For eligibility purposes, the housing payment consists of the principal and interest payment plus one month’s worth of property taxes and insurance.
Here is an example of the housing payment breakdown:
Principal and Interest
Total Housing Payment
VA Loan DTI Limits 2022
DTI, or debt-to-income ratio, should not exceed 41%. Nevertheless, borrowers with higher DTI ratios can get approved if they have enough residual income, another factor lenders consider when reviewing mortgage applications. After paying off debts, housing, and other obligations, residual income is the amount left over to cover basic living expenses, such as food and clothing.
What is the Maximum Debt-to-Income Ratio for a VA Mortgage?
DTIs no higher than 41% are preferred by the VA. Lenders consider “residual income” when reviewing mortgage applications when determining if borrowers with higher DTI ratios can get approved. Generally, residual income is the amount left over after paying all debts, housing, and other obligations.
VA loans do not typically require a down payment under most circumstances. It is possible that you will have to make up part of the difference if your purchase price is higher than its appraised value.
In addition, if the home price exceeds the county loan limit and you are subject to VA loan limits, you will need a down payment.
It may be necessary to make a down payment to get your foot in the door if there are more buyers than sellers in the market. As part of your down payment, a deposit is required by the seller in a bidding situation. This shows the seller that you are a serious bidder.
A benefit of putting down some money is that it may reduce the VA funding fee.
Can I get a VA Loan with a 55% DTI?
Lenders can go higher than this number if they desire VA loans, though the maximum is technically 41%. As high as 55% DTI may be allowed, though you will need extra residual income – or discretionary income after covering your monthly debts – in order to qualify.
You have a few options if your debt-to-income ratio exceeds 41%. The first is to add additional residual income. Having a DTI above 41% will require you to have at least 20% more residual income than your base requirement.
Before applying for a loan, you can try to reduce your DTI if this is not possible. You can decrease your debt (car loans, student loans, credit cards, etc.) or increase your income to accomplish this. Taking on a side business or temporary job can help, as well as your spouse getting a job, asking for a raise, or working more hours.
Financial Consultant and Author