Your debt-to-income ratio is an important factor in your home loan application, whether you are applying for a VA loan or another type of loan. The debt-to-income ratio looks at how much money you have coming in and compares it to how much money you have going out in payments.Student loans are a huge chunk of debt for most people, and since student loan payments are usually fairly large, they can be a big factor in a home loan application. They also make it harder to save up for a down payment and closing costs.Having student loans is not enough to automatically make you unable to get a home loan. However, missing payments or defaulting on your loans can harm your chances of obtaining a mortgage.
Lowering Your Debt-to-Income Ratio
Most mortgage lenders will require you to have a debt-to-income ratio below 30 percent, sometimes up to 36 percent. If your student loans are interfering with that, you can look into lowering the amount you have left to pay off, refinance or consolidate your loans to lower your monthly payments, or enroll in an income-based repayment plan. Those allow you to lower your payments to be aligned with your income level. They can lower your payments down to 10 to 15 percent of your monthly income.
One way you can keep your student loans from interfering with your VA home loan application and debt-to-income ratio is by having them deferred. While your loan is in deferment, you will likely have no payment or a significantly reduced payment. If you have federal student loans, they are automatically deferred for six months following your graduation, so if you can get them deferred for an additional six months, the loans will not impact your VA home loan.One thing that is tricky with this method is that if they are deferred due to financial hardship, this can make them count against you instead of for you. If you deferred your loan because you cannot afford it, the lenders will assume you also cannot afford a monthly mortgage payment.Some of the reasons you can get your loan deferred are:
-You are currently enrolled in school at least half-time or are in a career school
-Serving active duty
-Unemployment or under-employment
According to the VA, “If student loan repayments are scheduled to begin within 12 months of the date of VA loan closing, lenders should consider the anticipated monthly obligation in the loan analysis. If the borrower is able to provide evidence that the debt may be deferred for a period outside that timeframe, the debt need not be considered in the analysis.”Getting your loans deferred can be difficult, depending on who your student loans are through. Different financial institutions have different rules for deferment of student loans, so in order to get them deferred, you will need to contact them directly to find out what is required and what that entails.