For many people having children is one of the most rewarding experiences of their lives. But with great reward comes great responsibility.
Did you know that your child could have a direct impact on your VA home loan? There are three major areas where your kids can play a role in whether you’re approved for or denied a VA loan.
Daycare expenses can be financially crippling for some families. For many, their monthly daycare expenses are higher than their housing costs. Mortgage companies are aware of the huge impact daycare can have on a family’s finances. This is why they consider daycare expenses in your debt-to-income ratio.
Many lenders require a written child care statement. This is a document that’s reviewed by your underwriter once you have a contract on a home, and it outlines whether you incur daycare expenses on a monthly basis. If you state that you do not incur any daycare expenses for your child or children, then you’ll have to explain why.
For some families it makes financial sense for one parent to stay at home with their children. An underwriter will view this is a valid reason for not having day care expenses. For many other families, it makes more financial sense for both parents to work. If you are in the second group, you will need to determine what your monthly child care expenses are and make sure your loan officer is aware of this expense at the time 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 and added to your DTI ratio.
If your child care expense pushes your debt-to-income ratio over the approved limits, you have a couple 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.
The VA loan has a unique requirement that sets it apart from other types of loans. This is the residual income requirement. 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. The larger your family size, the more residual income you’ll need to have available to cover necessities such as food and clothing.
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 at the time you complete your loan application, start working on obtaining it right away as you don’t want to delay your closing by waiting until the last minute to obtain these documents.
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 three factors above.