Over the past few years (with the help of Dodd Frank most recently) home loan debt to income ratios have tightened. For example, the once lofty 65% debt to income ratio on Conventional loans was pushed to 45-50%. One of the most flexible and “make sense” mortgage options available is a VA mortgage. With the assurance of VA insurance, Arizona Lenders can often make exceptions to standard mortgage guidelines such as debt to income ratio (“dti”).
VA mortgage regulations typically cut veteran borrowers off at a maximum of 56.99% debt to income. That means a VA borrower can obtain a VA home loan up until his total payments (including the new mortgage payment) equal 56.99% of his gross monthly income (typically). While this is a very flexible guideline in and of itself compared to many other types of financing currently available a veteran often needs a little further help.
VA Loan Debt to Income – is 65% possible?
Most lenders would answer “no.” In most cases, they would be correct. In most cases however is not synonymous with always. With VA insuring its brave and honorable veterans mortgage lenders may sometimes make exceptional case by case loan approvals when circumstances permit. So while the max is typically 56.99% it pays to “try” for higher dti loan approval if the veteran has strengths within their loan application that support a higher debt to income ratio. What makes a file worthy of a special high dti VA loan approval? Read on for more.
What helps a veteran obtain a high debt to income approval?
There is no rigid defined list of how a veteran may obtain a loan approval above 56.99% BUT here is a good starters guide:
1. Loan MUST receive an automated loan approval (For example a DU or LP approval)
2. High residual income
3. Healthy reserve asset balances
4. Verified continual income
5. Limited housing payment shock (new payment not significantly higher than previous housing payment)
6. Having debt that will shortly be eliminated (home they are selling, car payment that is almost paid off etc…)
7. Great credit history (both housing and non housing)
8. Strong stable job history OR fixed retirement income OR both
It is critical that a loan officer consult with underwriting prior to telling a borrower they are “good to go.” There is a fair amount of underwriter discretion when evaluating a high dti VA loan approval. Other than that – it is absolutely possible to help a veteran obtain a VA loan when their debt to income ratio exceeds the “standard.”
We just obtained an approval for a veteran with a 65% debt to income ratio. On top of that, he will have 2 VA loans under his name at the same time thanks to his VA bonus entitlement.
By Jeremy House