VA Loan Reader Questions: Debt To Income Issues
Does the nature of a borrower’s debt affect how the lender interprets the VA loan applicant’s debt-to-income ratio?
One reader asks, “Part of the reason for my debt was home repairs, which were badly needed. Then I had to have cataract surgery, but have no insurance, seeing I lost my ChampVA due to not buying medicare. So I had to charge two eye surgeries also. Since all the first debt was home repairs, does this in any way help me qualify for a home loan?”
VA loans are always handled on a case-by-case basis when it comes to the particulars of the loan application, but when looking at the debt-to-income ratio, the lender examines the numbers rather than the reasons for them. If a borrower’s debt ratio is too high, it affects chances for loan approval.
That said, VA loan rules do recognize what are known as “compensating factors” that might work in the borrower’s favor. A borrower who has assets, financial reserves or other factors that could offset a higher debt to income ratio could find the lender willing to work with the borrower depending on circumstances.
All VA loan applications are different, much depends on circumstances that may or may not be present–there’s no way to tell whether this particular reader might have compensating factors, or whether the borrower’s debt ratio is even an issue. The mere existence of some debt does not disqualify the applicant from a VA guaranteed mortgage. It’s the amount of that debt versus the applicant’s income that counts.
Debt to income ratio issues can be managed prior to a VA loan application–borrowers concerned that their debt might be too high can work with a housing counselor to get pointers on getting the ratio into more acceptable levels–early planning is the key. Start planning for a VA mortgage loan application at least a year in advance to begin tackling such issues. You’ll be glad you got a head start on reducing your debt to income ratio.
Do you have questions about VA home loans or refinance loans? Ask us in the comments section.