We get tons of questions from Veteran’s who want to know what the “ratios” are that a VA Underwriter sues to qualify them for a mortgage loan. It unfortunately, depends… The VA Home Loan Ratio Requirements are based upon income – and that’s where it can get tricky. What income is used to qualify the Veteran in NC?
“I am reading conflicting information online about front/back end ratios on VA loans. I’m trying to figure out how much home we can qualify for and need an accurate ratio to get an idea . Can somebody explain to me how these loans are calculated?”
VA uses two methods. The first is single ratio, which is a guideline of 41% for all monthly debt. (no such thing as front ratio in VA, although almost every lenders’ computers default with two ratios, anyway). We use Automated underwriting for VA Loans – and this means the “computers” at Freddie Mac do most of the initial reviews. We’ve seen many Veterans get approved with 44 and 45% ratios for total debt.
The second method is the residual calculation. This type of calculation is not as widely used in NC. The Veteran Underwriter is asked to take the Vet’s allowable household total gross monthly income, then subtract out Federal, State and SS taxes, including Medicare. Then the underwriter subtracts all monthly debt, the total housing payment, estimated utilities and maintenance (there’s a form that the VA provides). That remaining number is the Veteran’s residual income. Every area of the country has it’s own required residual, depending upon family size.
If the Automated System kicks the Veteran out because of the 41% ratio being exceeded, we can request a manual underwrite based upon the Resideual Method. Va underwriting states that the 41% ratio can be exceeded provided the borrower has 125% of the required residual. Most investors we see today don’t like to cross the 50% ratio for all debt, and then anything over 45% typically requires compensating factors (money in the bank, income not counted and so on). You can google “va required residual income” and find these figures quite easily.
Many Veteran’s don’t realize that there is actually no limit on the number of VA Guaranteed Home Loans a veteran can receive. This typically surprises veteran borrowers who have used the program before. In reality, a Veteran may qualify (in some cases) to borrow for a home using VA Loan benefits for a Second Home (especially if there is a child involved in a divorce).
Because many of the VA Home Loan Ratio Requirements are so difficult to wade through, we offer specialized assistance specifically for veteran’s with questions about qualifying for a mortgage loan. Please call Steve and Eleanor Thorne at 919 649 5058. You can also connect with us on Facebook or Google +
We also offer the NC First Time Home Buyer Program that gives you additional benefits.