When two or more veterans seek a VA loan additional rules and guidelines apply.This video explains the basics. Official VA guidelines state that strengths of one veteran related to income and/or assets may compensate for weaknesses of the other. BUT... satisfactory credit of one veteran cannot compensate for poor credit of the other. When one of the borrowers is NOT a veteran the guidelines are slightly different. In that case the income of the veteran has to be sufficient to repay their portion of the loan. Income strength of the non-veteran spouse cannot compensate for income weakness of the veteran in determining eligibility. Finally, for joint loans where any party besides the veteran and/or their spouse will hold title to the property VA review is required. The VA Lenders Handbook - VA Pamphlet 26-7 - has more details.

This video and article explain which organizations are exempt from ability-to-repay laws when handling mortgages. While most lenders are required to assess a borrowers ability to repay a mortgage, a few types of agencies and organizations are not. These include: State Housing Finance Agencies Community Housing Development Organizations Community Development Financial Institutions Downpayment Assistance Providers In addition, some not-for-profit companies making relatively few home loans are exempt. Federal loans, like this made under, the Emergency Economic Stabilization Act, might be exempt. Mortgages laws are designed to help customers and lending institutions avoid risk. If you need to check on a lending institutions right to be exempted from Ability-to-Repay, inquire with the Consumer Financial Protection Bureau online, or by telephone at (855) 411-2372.

Debt-to-Income (DTI) is one of the key ratios lenders use to assess and approve loan applications. Determining your current financial obligations versus your existing earnings is one part of a lending institutions necessary evaluation of your capability to pay back a loan. Like the video states: financial obligations are existing monetary obligations; a vehicle payment is a financial obligation while a grocery expense is not. To compute your debt-to-income ratio, assemble your month-to-month financial obligation payments and divide them by your GROSS regular monthly earnings. (Gross earnings is the money you make BEFORE taxes and other reductions.) The Federally-established debt-to-income target is currently 43% for Qualified Mortgages, although some experts advise aiming for a more conservative figure — less than 36%. If your DTI is greater than the Federal guidelines, other loans might be available. These may also involve more documentation and data to establish your ability to repay. Rates for these are likely to be different from those offered for Qualified Mortgages. High debt-to-income ratio puts a property owner at higher threat of challenges to making regular monthly payments. Review your scenario and risks thoroughly if DTI is an obstacle.

Federal regulations for mortgage loans require lenders to assess a home-buyer’s likelihood of paying back the loan over the years ahead. As a result, lenders are required to ask about a borrower’s current financial situation and financial history. Lender questions will cover employment, expenses, assets, income and of course credit history and credit rating. The key thing for the prospective home-buyer to understand is that lenders have to ask these questions and make this assessment. These ability-to-repay rules are built into loans that meet Qualified Mortgage guidelines. If you are shopping and comparing loans, keep track of which options are meet the guidelines to be Qualified.

Picture your home loan on one side of a see-saw, and the home itself on the other. Thats a simplified version of LTV — "Loan to Value". Its one of the key ratios involved in setting loan amounts. Lenders frequently set LTV limits. If you know the ratio, you know the upper boundary of loan size, like this: "LTV on this $500K home is 80%." 80% x $500K = $400K max loan. Buyer would need at least $100K down for that loan. LTV also measures equity. If you put $100K down for the example above, you have $100K equity in the home. As a result, higher-LTV loans may require mortgage insurance. With an LTV greater than 80%, the risk of default is high because the homeowner has a lower "stake" in paying off the mortgage.

Laws to provide stable, suitable home financing created a category of loans and lending practices called "Qualified Mortgages." They provide guidance to help lenders provide loans that borrowers can repay successfully. Following the guidance and practices — and assessing each borrowers ability to repay—gives lenders additional legal protection. The Qualified Mortgage guidelines provide predictable and more-easily-understood loan features. They also rule out some loan terms and practices. Qualified mortgages cannot be: Interest-only loans Loans with terms >30 years "Negative Amortization" loans (increasing principal over time) Most forms of "balloon" loans with large payment partway into the loan period. These consistent practices help lenders and regulators provide consumers with objective guidance about reasonable debt. If you are buying a home, ask about your Qualified Mortgage options.

Lending institutions consider your full financial situation in calibrating acceptable loan structure and size. Some of the key factors that will come into play: DTI — Debt to Income — compares your pre-tax (gross) income to your expenses and commitments. Non-housing expenses and commitments, especially long-term debts such as car loans, student loans, child support and alimony. Do you have the cash available for down payment and closing? What is the source of the cash? What is your credit rating? Are there any outstanding or concerning issues in your credit history? The Federal Housing Authority sets general guidelines about these ratios, which lenders will consider. These ratios may be adjusted up or down slightly over time. In the past few years, FHA guidance has recommended that monthly mortgage payments not exceed about 1/3 of gross income. Overall expense-ratio recommendations have been between 40% and 43%. All of these factors will be considered and verified in determining qualifying loan amounts.