Many things come into play when you apply for a VA loan, including your debts. Certain debts are looked at differently than others, as is the case for student loans. If you are still paying back that college education, you should know how those payments will affect your VA loan eligibility.
Calculating your Debt-to-Income Ratio
The most concerning factor in regards to student loans is how they will affect your debt-to-income ratio. As a general rule, these loans get included in your DTI, but there are some exceptions. If your loans for your college education meet any of the following conditions, they will get included in your DTI:
- Currently due and payable
- Deferred for less than 12 months
- Currently in forbearance
These situations obviously differ. On the one hand, you have loans that are currently due and payable. This means that any deferment period is over and you must pay your loans on a monthly basis and on time. These payments usually get reported on the credit report so the lender can verify that you make timely payments.
Student loans that are deferred means that you do not currently have to pay them. That might be exciting for you, but the lender looks at it differently. If the payments are going to start becoming due within the next 12 months then they must get included in your debt ratio. If there is not a specific payment reporting on your credit report since you have not made any yet, the lender can contact the student loan lender or use an amount they specify on their own to qualify you for the loan.
If your loan is currently in forbearance you can expect the greatest amount of scrutiny on your VA loan application. A loan goes into forbearance because you could not afford it. If you could not afford your student payments, how are you going to afford a mortgage? A payment plan would have to be worked out and careful consideration of your disposable income would have to be considered.
Determining your Eligibility with Student Loans
If you are within the 12 month period where your loan payments for your education will need to be considered, you will have to figure out your debt ratio and your disposable income to determine your loan eligibility. Depending on where you live, you will have to meet certain disposable income requirements. These requirements are as follows for a family of 1:
- Northeast $450
- Midwest $441
- South $441
- West $491
If you do not have at least this amount left over after you pay your potential mortgage payment (including taxes, insurance, and HOA dues); utility payments; credit cards; student loans; and car payments then you will not be eligible for a VA loan. You can figure out how the VA would consider your disposable income amount by completing VA Form 26-6393.
Typically it is in your best interest to include your student loans in your VA loan eligibility so that you are fully aware of how the payments will affect your financial status. Even if your loans are deferred for 18 months, they will become due well before your 30-year or even 15-year mortgage term expires, which means you should really understand the full impact of your financial situation in the future.
Having a full understanding of how your finances will be affected by all future payments is helpful in keeping you on track. If your student loan payments are deferred for now, you can still budget for them every month so that you can get used to paying them when they do become due. This helps you to prevent payment shock down the road and reduces the risk of defaulting on your educational loans and/or your VA mortgage.