VA Loans and the Holiday Shopping Season: What to Know
Today is Black Friday, the biggest retail shopping day of the year and a time when many find incredible bargains at their favorite shops. With people camping out in advance of the post-Turkey Day shopping spree, and many getting their credit cards ready for a big round of holiday gift-buying, it’s sometimes difficult to slow down during Black Friday until all the bargains have been exhausted.
But if you’re considering applying for VA loans in the near future, you may wish to rethink your holiday shopping season plans. Borrowers who aren’t sure about their debt-to-income ratio need to be wary of running up large amounts of credit card debt in the six to 12 months leading up to a VA home loan application. If your debt-to-income ratio is too high, it could put your VA home loan at risk.
The holiday shopping season is “safer” for those who know–and are comfortable with–their debt to income ratio as it applies to a VA home loan. If you have not done the numbers, consider the following information on the subject:
Add up the total mortgage payment (principal and interest, escrow deposits for taxes, hazard insurance, homeowners’ dues, etc.) and all recurring monthly revolving and installment debt (car loans, personal loans, student loans, credit cards, etc.). Then, take that amount and divide it by the gross monthly income.
What is the maximum a borrower can have in the debt-to-ratio department? 41%. In the event the number exceeds the 41%, the VA has a residual income guideline which can allow approval, yet are not considered a compensating factor.
It’s always a good idea to be more conservative with credit card spending in the year leading up to a VA mortgage loan application, especially during the holiday season. Don’t let credit card debt stand in the way of home loan approval–check your debt to income ratio!
Do you have questions about VA home loans? Ask us in the comments section.