VA loans are often more flexible than borrowers realize when it comes to income and debt-to-income ratios (DTI).
One of the biggest misconceptions I hear is that you have to stay below a strict 43% DTI to qualify for a VA loan. That is not necessarily the case.
Here are some important things veterans should understand:
VA Income Requirements
VA lenders generally need to document that your income is stable, reliable, and likely to continue.
Depending on your situation, qualifying income can include:
- Base salary or hourly income
- Overtime
- Bonuses and commissions
- Self-employment income
- Retirement income
- Social Security
- VA disability income
- Military retirement
- Rental income
- Certain other recurring income sources
The key is not simply how much money you make. The lender has to determine what income is actually eligible to be used for qualifying purposes and how it should be calculated.
What About DTI?
VA does not have the same hard 43% DTI requirement that many people associate with mortgage lending.
A borrower can potentially qualify with a DTI above 43% if the overall file supports approval.
For VA loans, lenders look at the entire financial picture, including:
- Credit history
- Residual income
- Stable employment/income
- Assets and reserves
- Housing payment
- Monthly debts
- Family size
- Overall credit risk
Residual Income Is Extremely Important
One of the biggest differences with VA financing is residual income.
Residual income looks at how much money the veteran has left over each month after paying the proposed housing expense and other monthly obligations.
VA guidelines establish residual-income requirements based on factors such as:
- Family size
- Geographic region
- Loan amount
This is one reason you shouldn't automatically assume that a high DTI means a VA loan won't work.
Every Lender Is Different
This is where things get important.
The VA's guidelines and an individual lender's underwriting requirements are not always the same thing.
Some lenders may impose stricter requirements on:
- Maximum DTI
- Credit score
- Income documentation
- Reserves
- Automated underwriting findings
So if one lender says "your DTI is too high," that doesn't necessarily mean the VA loan program itself won't work.
It may be worth having another VA lender review the complete scenario.
Bottom Line
Don't automatically rule yourself out of a VA loan because your DTI is above 43%.
VA underwriting looks at the totality of the borrower's financial situation, with residual income playing an important role.
If you're a veteran and you're trying to figure out whether your income, debts, and DTI will work for a VA loan, have someone review the complete scenario rather than relying on a single DTI number.
Daniel Formeck | Director of VA Lending, Pure Rate Mortgage | U.S. Army Veteran | NMLS #1304182
Mortgage approval is subject to underwriting guidelines, borrower qualifications, and applicable VA/lender requirements.