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Debt to Income Ratio

The debt to income ratio is a factor that lenders use to evaluate the ability of a borrower to repay a loan. It shows the amount of available income that can be used to pay a mortgage. This number is equivalent to the total mortgage payment plus all other recurring monthly expenses divided by the gross monthly income of the borrower. According to VA standards, this number may not exceed 41% if an individual hopes to qualify for a VA loan.

Although the debt to income ratio is important to qualify for a VA loan, there are several other factors that are evaluated too. This may help prevent individuals with a debt to income ratio from being denied a VA loan. Other factors than can compensate for a debt to income ratio higher than 41% are long-term employment, excellent credit, nominal debt, considerable assets, military benefits, etc.

Because the debt to income ratio is important for eligibility of a VA loan, individuals who intend on applying for a VA loan should prepare well in advance of filling out any paperwork. A potential borrower can ensure that the will meet the debt to income ratio standards of the VA by taking steps to restore their credit beforehand. This can be done in a number of ways, such as paying off all credit cards, paying off a car, etc. The advice of a credit counselor may also be beneficial for individuals needing more help restoring their credit.

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