If a lender has told you there is a strict debt-to-income limit, you may expect a “no” before you even apply. On a VA loan, that limit works differently than many buyers think.
I am Scott Carlin, a 20-year Air Force veteran and the broker behind TrueVet Mortgage. Here is the short version: on a VA loan, your debt-to-income ratio matters, but it is not the only test. The VA also looks at residual income, and it often carries more weight.
What debt-to-income measures
Your debt-to-income ratio, or DTI, compares your monthly debt payments to your gross monthly income. Under VA rules, the lender adds up the new house payment (principal, interest, taxes, and insurance), any homeowners association dues or special assessments, and your long-term debts such as car loans, student loans, credit card minimums, and child support. That total is divided by your income before taxes.
For example, if your household earns $7,000 a month and the new house payment plus your other debts come to $2,800, your DTI is 40 percent.
Everyday living costs such as groceries, gas, and phone bills are not part of the ratio. On the income side, active-duty borrowers document their pay with a Leave and Earnings Statement, and military allowances can count as income when VA rules are met. If you want to see the housing allowance for your area, our BAH calculator shows it by ZIP code. We also have local pages for Patrick Space Force Base BAH and Fort Hood BAH.
41 percent is a benchmark, not a hard limit
The number you will hear most often is 41 percent. VA rules set 41 percent as the standard ratio, and many websites describe it as a hard ceiling.
It is not. VA rules do not set a maximum ratio. When a ratio is above 41 percent, the loan can still be approved, but the lender must justify it with compensating factors and a second-level review by the underwriter’s supervisor, or send the loan to the VA for prior approval.
This is why two veterans with the same ratio can get different answers from two lenders. Each lender can add its own standards on top of VA rules, as it can with credit scores. One lender may stop at 41 percent. Another may approve the same file.
Residual income: the second test
Residual income is the money left each month after your house payment, maintenance and utilities on the new home, your other monthly debts, and federal, state, and Social Security taxes. It is a dollar amount, not a percentage.
A ratio cannot show how much money a family has left to live on. A 45 percent ratio on a high income can leave more money each month than a 35 percent ratio on a low income. Residual income measures that directly.
The VA publishes residual income guidelines by region, family size, and loan amount. Florida and Texas are both in the South region. For loan amounts of $80,000 and above in the South, the monthly guidelines are:
- Family of 1: $441
- Family of 2: $738
- Family of 3: $889
- Family of 4: $1,003
- Family of 5: $1,039
- Families of 6 or 7: add $80 for each member over 5
VA rules say these figures are a guide, and no single factor decides whether you qualify. One rule matters a great deal: if your ratio is above 41 percent and your residual income is at least 20 percent above the guideline, VA rules do not require the second-level review and written justification. For a family of four in the South, 20 percent above $1,003 is about $1,204 a month.
What helps when your ratio is high
VA rules list compensating factors that can support a loan with a higher ratio. They include:
- High residual income. Residual income well above the guideline is one of the listed factors.
- Significant savings. Money left in the bank after closing.
- Little or no increase in housing cost. A new payment close to what you pay in rent now.
- Strong credit history. Excellent long-term credit and careful use of consumer credit.
- Long-term employment and military benefits.
- A good record as a homeowner.
Two other rules can help your ratio:
- Nontaxable income can be grossed up. Verified nontaxable income that is likely to continue, such as certain military allowances or disability benefits, can be adjusted upward for the ratio. For residual income, only the actual amount is used.
- Short-term debts are handled differently. Generally, debts with 10 or more months left count in the ratio. A debt with fewer months left can still count if the payment is large enough to affect your budget right after closing.
A note from experience
I served 20 years in the Air Force, including time at Eglin AFB and Patrick SFB. I have seen many military families run their own numbers, see a ratio of 44 percent, and decide they cannot buy yet.
Sometimes that is the right decision. Often it is not, because the ratio was not the only test. As a broker, we can send your file to lenders whose standards fit it, instead of accepting one lender’s limit as final. We work with buyers across Florida, including Palm Bay, Melbourne, Titusville, and Fort Walton Beach, and across Texas, including San Antonio and Abilene. See all of our Florida and Texas VA loan markets.
Frequently asked questions
What is the maximum DTI for a VA loan?
VA rules do not set a maximum. 41 percent is the standard. A loan above it can be approved with compensating factors and extra review. Individual lenders may set their own limits, which is why answers vary.
Can I get a VA loan with a 50 percent DTI?
It is possible. A ratio that high usually needs residual income well above the VA guideline, plus other strengths such as savings or little change in housing cost. Each file is decided on its own facts.
Does BAH count as income for a VA loan?
It can. Military allowances can count when they are documented and meet VA rules. Because BAH is not taxed, it can often be grossed up for the ratio. Other verified nontaxable income, such as disability benefits, can be treated the same way.
What is included in residual income?
Your gross income minus taxes, the full house payment, maintenance and utilities on the new home, and your other monthly debts. The amount left is compared to the VA guideline for your region and family size.
Do student loans count against my VA DTI?
Usually yes. The VA has specific rules for student loans that are deferred or in repayment, so the amount counted depends on your loan status. Have a broker review your actual statements.
Will paying off a credit card help my ratio?
It can, especially if the minimum payment is large. Ask before you use savings to do it. Savings after closing are also a compensating factor, so paying off debt does not always help.
Find out where you stand
If your ratio looks high, that is a reason to talk to someone, not a reason to stop. We will calculate your real DTI and residual income, tell you where you stand, and explain what would need to change. Learn more about the VA loan program, the VA loan requirements, and how the process works.
Call or text 321-364-4461, or send us a message.
See all of our VA loan guides.