For eligible servicemembers, veterans, and surviving spouses, the existing VA home loan program just got better! The Department of Veterans Affairs (VA) has introduced a new policy regarding how student loan debt affects mortgage eligibility.
Related: VA Loans for Military Veterans
VA loosens Guidelines for Student Loans
The new policy makes it easier for VA eligible borrowers to obtain a purchase or refinance loan, by changing the way student loan monthly payments are calculated. Prior to this change, 1% of the total student loan debt had to be counted toward the borrower’s debt-to-income (DTI) ratio each month, regardless of actual monthly payment structure or deferment. Now, however, the payment will be calculated based on 5% of the total student loan debt, divided by 12 months. Clear as mud, right?
Lets do some math!
For example, lets say John has $65,000 in student loan debt. Formerly, his monthly student loan payment would have been $65,000 * 1% (.01) = $650. Now, his payment will be $65,000 * 5% (.05) / 12 = $271.
What if John is on an income-based repayment structure, and only pays $250 per month? The new policy also allows a statement from John’s student loan servicer to be provided, allowing the calculated payment to reflect the actual loan terms.
What if John’s student loans are in deferment? If his repayment is scheduled to begin within 12 months from the estimated closing date, we must use the 5% / 12 months rule. If not, however, the payment can be omitted altogether if written evidence can be provided that repayment will be deferred at least another 12 months from the closing date.
By changing the way student loan payments are calculated, more VA eligible borrowers will qualify, and for a larger amount. Check out our VA Mortgage Calculator to estimate your monthly payment on a desired home purchase.
What is a VA home loan?
VA home loans are originated by private lenders, banks, and mortgage companies, but the VA guarantees a portion of the loan, allowing us to offer you more favorable terms. VA purchase loans help you buy a home with a low interest rate, without requiring a down payment or private mortgage insurance (PMI). There are also special VA loan programs for Cashout and Streamline Refinances.
Who is eligible for a VA home loan?
Active servicemembers, veterans, and surviving spouses are eligible for VA home loan programs, with a valid certificate of eligibility (COE). Length of service or service commitment, duty status and character of service determine each veteran’s eligibility for specific benefits. All VA borrowers are still subject to the minimum credit score requirement of 580 and sufficient income levels to cover expected monthly obligations. For more specific information on eligibility and requirements, visit the VA benefits website.
Get More Information
To apply for a VA Mortgage or Refinance call Riverbank Finance today at 1-800-555-2098.