VA Loan Credit Score, DTI and Residual Income

Credit score

VA itself does not set a minimum credit score. It asks lenders to look at your whole credit history: how you have paid bills, whether you have recent late payments, and how you have handled big events like bankruptcy. Each lender then adds its own minimum score, often called an overlay. Many lenders use a cutoff somewhere in the 500s or 600s. If one lender says no, another may say yes.

Ways to help your credit

• Pay every bill on time for at least the next 12 months.
• Keep credit card balances low compared to their limits.
• Do not open new accounts or co-sign while you are buying.
• Check your reports for free and dispute real errors.

Debt-to-income ratio (DTI)

DTI is your total monthly debt payments divided by your monthly gross income. Debts include the new house payment, car loans, student loans, credit card minimums and child support.

VA's guideline is 41%. That is not a hard cap. If your DTI is above 41%, the lender can still approve the loan with a written explanation of strengths, called compensating factors, such as solid savings, a long job history or a small payment increase.

Example

If you earn $6,000 a month before taxes, 41% is $2,460. If your new house payment would be $1,800 and your other debts total $500, your DTI is $2,300 divided by $6,000, or about 38%.

Residual income

Residual income is what makes VA loans different. It is the money you have left each month after paying your mortgage, taxes, insurance, debts, and an estimate for utilities and upkeep. VA wants to see enough left over to cover food, gas, clothes and life.

VA sets minimums by family size, region and loan amount. For loans of $80,000 and above, the monthly minimums are:

• Northeast: 1 person $450; 2 $755; 3 $909; 4 $1,025; 5 $1,062
• Midwest: 1 person $441; 2 $738; 3 $889; 4 $1,003; 5 $1,039
• South: 1 person $441; 2 $738; 3 $889; 4 $1,003; 5 $1,039
• West: 1 person $491; 2 $823; 3 $990; 4 $1,117; 5 $1,158

Add $80 for each family member over five (up to seven). Smaller loans, under $80,000, have lower minimums. Family size counts everyone in the household you support, including a spouse, even if the spouse is not on the loan.

The 20% rule

If your DTI is above 41% but your residual income is at least 20% above the guideline, the lender does not need a second-level review to justify the higher DTI. In plain terms, lots of money left over can outweigh a high ratio.

Step by step: see where you stand

1. Add your monthly debts from your credit report.
2. Estimate your new house payment, including taxes and insurance.
3. Figure your DTI using gross monthly income.
4. Estimate residual income: take-home pay minus house payment, debts and an allowance for utilities and maintenance.
5. Compare to the chart for your region and family size.
6. Talk to a lender to run the exact numbers. Their math uses VA's worksheet.

What counts as income

Lenders can use steady income such as base pay, BAH and BAS, VA disability compensation, retirement pay, Social Security and documented self-employment income. Overtime, bonus and part-time income usually need a history. Tax-free income like VA disability pay may be grossed up for DTI.

Bottom line

VA's rules focus on whether you can comfortably afford the home, not just a credit score. Know your DTI, know your residual income, and shop lenders whose overlays fit your situation.