For many people, having children is one of the most rewarding experiences of their lives. But it also comes with great responsibility, including financial obligations.
Did you know that your child could directly impact your VA home loan? Let’s explore how your kids may play a role in whether you're approved for or denied a VA loan.
Child Care Expenses
Daycare expenses can be financially crippling for some families. For many, their monthly daycare expenses are higher than their housing costs. Mortgage companies know how much daycare can impact a family's finances.
For some families, it makes financial sense for one parent to stay at home with their children. An underwriter will view this as a valid reason for not having daycare expenses. For many other families, it makes more financial sense for both parents to work.
If you are in the second group, you must determine your monthly child care expenses and ensure your loan officer is aware of this payment when you get prequalified. Failing to provide this information at the start of the process could lead to a loan denial later on if these expenses are discovered by an underwriter.
Is child care considered in DTI?
For VA loans, child care expenses are considered in your debt-to-income (DTI) ratio if they are recurring. If your child care expense pushes your DTI ratio over the approved limits, you have a couple of options:
- Wait until your daycare expense decreases, such as when your child enters elementary school
- Look into paying down other obligations, such as credit cards or auto loans, to reduce your DTI ratio
- Look at reducing the loan amount
VA Child Care Statement
Many lenders require a written child care expense statement or letter if you have children under the age of 12. This is a document that your underwriter reviews once you have a contract on a home and outlines whether you incur daycare expenses monthly. If you state that you do not incur any daycare expenses for your child or children, then you must explain why.
Residual Income and Family Size
The VA loan has a unique requirement that sets it apart from other types of loans called residual income. The VA has established specific guidelines on how much income you must have left over for basic necessities after expenses based on your family size.
You can review this in-depth article explaining VA loan residual income guidelines . Basically, the larger your family size, the more residual income you'll need to cover necessities such as food and clothing.
» CALCULATE: Calculate your VA Loan savings
Child Support Payments
If you pay child support, this monthly payment will be included in your DTI ratio. If you receive child support, you should talk with your loan officer about the possibility of including this income, which could lower your DTI ratio.
Whether you pay child support or receive it, you will have to provide documentation of the amounts, usually in the form of a child support order or divorce decree. If you don't have this documentation when you complete your loan application, start working on obtaining it immediately. You don't want to delay your closing by waiting until the last minute to gather these documents.
Bottom Line
Whether your child is 6 months or 16 years old, they come with expenses. Your loan officer should be able to talk with you about your unique situation and help you determine what you can qualify for based in part on the factors above.
Veterans United is always here to help. Reach out to a VA loan expert today at 855-259-6455 if you have any questions.
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