Understanding the Debt-to-Income Ratio
When applying for a VA home loan, lenders will calculate the borrower's debt ratio as one of a few factors assessed in determining whether or not the individual will qualify for a VA loan. When calculating debt ratio, the borrower's income, credit card debts, and the new debt created by the VA mortgage are all taken into account. A borrower may not have a debt ratio of more than 41% in order to qualify for a VA loan.
While debt ratio is certainly an important factor in determining eligibility for a VA home loan, there are other financial factors that are also considered, such as the borrower's credit rating and stability of income, etc. It is important to consider your financial situation before beginning the loan application process because there are many steps that borrowers can take prior to applying to improve their credit and increase their chances for approval of a VA home loan.
There are many ways to work on improving your credit before you apply for a loan, but you must plan ahead as it can take several months for credit reporting agencies to update your information. For borrowers with a great deal of debt from many sources, it may be best to seek the advice of a credit counselor. For those with only a small amount of debt, simple steps can be taken on your own to improve your credit. The most important thing is to eliminate as much debt as possible. You can do this by limiting yourself to using only one credit card, paying off as much credit card debt as possible, paying off a vehicle, etc. Eliminating any source of debt will improve your credit rating and improve your eligibility for loan approval.