VA Compensating Factors

VA mortgage lender recognize there is justification for exceeding the qualify ratio limits.

For manual underwriting loans, higher housing expense, higher housing expense and total obligation to income ratios may be considered as long as there are sufficient compensation for factors and rationale that justify their use. Less flexibility in warranted for transaction involving layering of risk

Compensation Factor                                   Guideline Description

  • Housing Expense Payments- The borrower has successfully demonstrated the ability to pay housing expenses greater than or equal to the proposed monthly housing expenses for the new mortgage over the past 12-24 months.
  • Down payment- The borrower makes a larger down payment of 10% or higher towards the purchase of the property- The borrower has demonstrated an ability to accumulate savings and a conservative attitude towards use of credit.
  • Accumulated Savings- The borrower had demonstrated an ability to accumulate savings and a conservative attitude toward using credit.
  • Previous Credit History- A borrower’s previous credit history shows that he/she has the ability to devote a greater portion of income to housing expenses.
  • Compensation or Income Not Reflected in Effective income- The borrower receives documented compensation or income that is not reflected in effective income, but directly affects his/her ability to pay the mortgage. This type of income includes food stamps and similar public benefits.
  • Minimal housing Expense Increase- There is a minimal increase in the borrowers housing expense. 
  • Substantial Non Taxable Income- The borrower has a potential for increased earning as indicated by job training or education in his/her profession. 
  • Potential for increased earnings- The home is being purchased because the primary wage earner is relocating and the secondary wage earner has an established employment history is expected to return to work, and the secondary wate earner has an established employment history is expected to return to work, and has reasonable prospects for securing employment in a similar occupation in a new area. 
  • Primary Wage Earner relocation- 
  • Substantial Cash reserves


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