Many borrowers hear that they need a debt-to-income ratio below 41 percent to get a VA loan. That is not how the VA describes it. Understanding the difference can keep you from ruling yourself out.
Debt-to-income is a guide
Debt-to-income, or DTI, compares your total monthly debt payments, including the new housing payment, to your gross monthly income. The VA's Lender's Handbook calls it a guide that is secondary to residual income. You can read the language in Chapter 4 of the handbook.
41 percent is a benchmark, not a cap
When a VA loan's DTI is above 41 percent, the file gets closer scrutiny. The lender has to document the reasons for approving it and the compensating factors that support the decision. Having a ratio above 41 percent does not automatically disqualify you.
Residual income is what counts most
Residual income is the money left each month after taxes, your housing payment, and your other obligations. The VA publishes minimum residual income amounts that vary by loan size, family size, and region of the country. They are guides rather than automatic pass or fail lines, but a shortfall in residual income can by itself be a reason to turn down a loan.
You can estimate yours with our VA Loan Affordability Calculator.
Compensating factors
The handbook lists compensating factors that can support a loan with a higher DTI, such as strong residual income, a long and stable work history, and significant liquid assets. They cannot make up for unsatisfactory credit.
Lender rules can be stricter than the VA's
Individual lenders sometimes add their own requirements, called overlays, that go beyond VA policy. If one lender turns you down, a different lender may approve the same file. Because we work with multiple lenders, we can look for the best fit.
The VA Lender's Handbook is the primary source for these rules, and it is updated from time to time.