If you’re like most people you spend until your money is gone. Or if you’re a little more responsible you manage to live within your means, so there’s money left over when your next paycheck comes in. For many people buying a home means their monthly housing expenses is going to increase. So it’s important to know exactly what’s coming in and what’s going out.

Divide your expenses into categories (for example loans, credit cards, food, entertainment, etc). See where you can save money, and set new spending goals for yourself.

When you apply for a guaranteed VA loan, lenders are going to look at your debt to income ratio. This is a measurement of how much debt you have versus how much qualifying income you have coming in. 

Debts are financed obligations, not bills for monthly services (think about the things you pay interest on). ($1,500 Monthly Debts / $5,000 Gross Income = 30% Debt to Income Ratio). So for example if you make $5,000 a month and you have $1,500 in monthly debts, your debt to income ratio would be 30%. Because $1,500 is 30% of $5,000.

Here’s where things get interesting. The lender is going to include your proposed monthly mortgage payment with all your existing debts when calculating your debt to income ratio. Technically the VA prefers that your total debt to income ratio be under 41%. 

That being said I’ve closed loans for veterans with debt ratios well over 60%. But generally it’s because there were other positive factors surrounding their loan application that made them a favorable candidate for financing. If you want to give yourself the best chance of qualifying, try to work down your debt so your debt to income ratio will be in the 40s or lower.

Despite what some lenders may tell you, there is not a VA minimum credit score. So it’s very possible to get VA home loans with bad credit. If you have some credit challenges, you may still be able to participate in the program. 

The VA knows that some veterans may have made mistakes in the past. What the care about is seeing that you’ve turned the corner and rebounded from those setbacks. You do this by paying all of your bills on-time for a year, and not incurring any new late payments. 

This is less important if you have a strong credit score. Someone with a high score could have missed a payment on something last month, and they would still likely qualify. But if your score is less than desirable (below 620) this is crucial.

Pay your bills on-time for a year, and even if your score doesn’t rise above 620 you’ll still have a strong chance at being approved. The key is to not have any derogatory marks on your credit report for a 12 month period. In some instances, this includes collection accounts. So if you have outstanding collections, it may be time to call those entities and make arrangements to settle those debts.

You cannot get a federally insured/guaranteed loan if you are currently behind on a federal debt. There’s many lenders who will write VA home loans for bad credit borrowers, but none for veterans with defaulted student loans.

If you haven’t done this year’s taxes, and you filed for an extension you’ll be fine. Otherwise, you need to get your taxes filed. If you owe, you’ll need to pay your outstanding federal income taxes, or set up a payment arrangement.

Most lenders will want to see that you’ve made at least three payments on your IRS repayment agreement before allowing you to proceed with obtaining a mortgage.

If you’re currently self-employed lenders will want to see two years of tax filings for that business. So if it’s a business you’ve had less than two years, you may need to wait before trying to buy.

If you receive commission, bonus, or overtime income that you need to use in order to qualify you’ll need ideally two years on the job. If you have less than one year, it will be nearly impossible to qualify with your variable income. So if your base income isn’t enough, you’ll have to wait.

If you are currently living rent free you should be saving money every month. Lenders will be skeptical of your ability to repay a monthly mortgage payment if you currently don’t have any housing expenses, yet have been unable to save money.

The best thing to do whether or not you have housing expenses or not, is to do a mortgage payment test. Get an idea of what the approximate mortgage payment would be for the type of home you wish to buy. 

Subtract your current housing expenses from that amount and save the difference every month. If you find this difficult to do, you might need to lower your desired purchase price. This is an easy way to save money, and prepare yourself for the upcoming mortgage payment.

If you feel like you’ve already accomplished all or most of these things, you may be looking for information on how to apply for a VA loan. Simple click this link to be taken to the online application. I’ll have you pre-qualified and ready to go shopping in no time at all. 

You may be asking yourself how do I know what mortgage payment to use to figure out what my debt to income ratio will be, or to give myself a mortgage payment test. Well be sure to watch my video on “How to Calculate my VA Loan Payment”, where I give you specific instructions on doing just that.