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VA Loans

How to Pay Down Debt to Get a VA Home Loan

VA home loans have allowed millions to pursue their dream of homeownership. Since the program was started over 75 years ago, the VA has backed over 25 million loans. VA loans make it possible for qualifying military members and Veterans to receive a home loan with no money down. However, in order to get approved, you’ll need to meet the requirements stipulated by your lender, which includes having a good debt-to-income ratio. 

If you have a high amount of debt, you’ll most likely need to pay some of it off before a lender will be willing to work with you. In this article, we’ve shared some tips for how to pay down debt before you apply.


VA Loan Requirements: Debt-to-Income

Before we get started, let’s talk first a little about how debt applies to VA loan requirements. The Department of Veterans Affairs does not mandate a specific debt-to-income ratio. Rather, they have a suggested guideline. The VA recommends a debt-to-income ratio no higher than 41%

You can calculate your debt-to-income by adding up your total monthly debt payments (minimum credit card payment, auto loan, etc.) then divide the number by your monthly income. If the figure is higher than 41% you’ll need to work on paying down your debt. 


How to Pay Down Your Debt

Use these tips to pay down your debt and increase your odds of being approved for a VA home loan:


Pay More than the Minimum Payment

If possible, try to make payments that are larger than the minimum required amount. This includes any payments you have for an auto loan, credit cards, personal loan, etc. Making larger payments will help you pay down debt faster.


Increase Your Income

Perhaps you can’t afford to pay over the minimum because your income is limited. Therefore, you may want to try to increase your earnings. There are a number of ways you can do this. You can get a second job, rent out a room, try dog walking, or house-sitting, sell some of your belongings, or even open an online store on a platform like Etsy or eBay.


Make Payments Twice Per Month

Instead of making payments once per month, you can make payments bi-weekly. This will help you pay down your debt faster. Make sure to check with your lender to see if there are any fees or penalties if you go this route.


Use the Snowball Method

The snowball method is a strategy for paying off debt that involves paying off the smallest debt first and then moving on to the next smallest amount. For this method, you make minimum payments on all your debt except the smallest one. This one you overpay. Once that debt is paid off, you move on to the next one. The idea is that you gain momentum from the money you save by paying off your smallest debts. These savings can then be used to pay off larger debts.


Wondering if You Qualify for a VA Home Loan?

We can help! Call our office today to get started with the pre-qualification process or receive more information.