How Dependents Affect Your VA Loan
Although your dependents may not be listed as borrowers on your loan application, they still have an impact on your loan approval. The Department of Veterans Affairs has unique approval guidelines regarding the dependents of borrowers on a VA loan.
Here are 5 ways that Dependents Affect Your VA Loan:
Daycare expenses can be extremely costly for families. Some families pay the same amount in child care as they do in housing expenses. Mortgage companies are aware of this large expense and include it as a liability on a mortgage loan application. Underwriters will request written documentation proving how much your child care expenses are. If a parent stays at home with a child, this will be accepted as a reason for not paying day care expenses.
If your childcare expenses make your debt to income ratio too high to be approved, try the following steps:
- Pay off other debts to offset the cost of child care.
- Wait until your child care expenses subside, such as when they start school.
- Consider reducing the mortgage loan amount you are applying for.
The VA requires that borrowers disclose any child support they are paying on their mortgage application. The amount of child support that is paid monthly will be counted toward the debt to income ratio on the application. If a VA applicant is currently paying child support in arrears this will decrease the chance of being approved for a VA mortgage loan. The VA considers back payments on child support as derogatory credit. The applicant will need to become current on their child support before they can get a VA loan.
On the other hand, if you are receiving child support you can speak with your mortgage professional about adding the child support as income. The VA will accept child support as income if it meets the following guidlines:
- There is a court ordered agreement specifying how much child support you receive each month.
- The child support has met “seasoning requirements” of a certain number of months.
- The child support will continue for at least 3 years following the closing of the loan.
In most cases, if a spouse is not listed on the loan application, their debts will not be included in the decision. However if you live in a community property state your spouse’s debts will be included on the application. A community property state has laws stating that married persons share their income, debts, property and assets jointly. If you have a spouse with additional debt, but no income this can negatively impact your debt to income ratio and chances of being approved for a loan.
Here is a list of community property states:
- New Mexico
Many times after a dissolution of marriage a spouse may be obligated to pay alimony or spousal support. Although the ex-spouse is no longer your dependent, you are required to disclose how much alimony you pay and it may be added as a liability on the application.
Another requirement that is unique to VA loan applications is the residual income requirement. The VA has very specific guidelines outlining how much money you must have left in residual income to cover basic necessities such as food, clothing, utilities, etc. The amount of residual income required is based on your family size.
Your family is your greatest source of happiness and purpose, however they are also a great responsibility. Dependents affect your VA loan more than you’d expect. VA loan guidelines require that the costs of maintaining and supporting a family are factored into mortgage loan applications. Keep in mind these guidelines when you are ready to apply for a VA loan.