No down payment is required on VA mortgage amounts of $417k or less, no mortgage insurance is charged either, however if you have less than 10% disabled you are required to pay a VA Funding Fee (which can be financed into the loan amount), credit can & can't be more strict, just depends on your situation, income is definitely more strict than conforming loan programs though, and there are no prepay penalties on VA mortgages.
Your debt to income ratio is probably going to be too high for a $150k sales price, and might be too high for a $125k sales price too. Assuming you only have $150/mo in other debt payments, $125k @ 6% = $749.44/mo, property taxes can be about 3% of the sales price, or $312/mo, and your insurance is probably going to be in the $60/mo ballpark... totalling $1,271/mo in payments On $2,583.33/mo of income, that puts your debt to incmoe ratio at 49%. VA generally wants no more than a 41% debt ratio, however a higher debt ratio may qualify if you have compensating factors. Some of those compensating factors are:
- Less than 10% increase from old rent/house payment to the new housing expense
- A borrower’s excellent savings ability (as shown by savings accounts, stocks, 401k’s, etc.)
- 3 or more months cash reserves (house payments after closing) that are not part of a gift
- Limited use of credit (such as low/no credit card debt, no owing loans, etc.)
- Borrower has potential for increased earnings
- Borrower has income that cannot be used as qualifying income (such as your wife makes income but she couldn’t be on the loan for credit reasons, etc.)
- Larger than minimum down payment (0% is the minimum down payment on VA)
- Debt ratios significantly under the preferred levels (which wouldn’t apply to your situation)
- Strong credit or credit scores (680+ is considered strong credit)
- Time on the job, the longer the better
- Time at current residence, the longer the better
- No recent (12 months) derogatory accounts or prior derogatory accounts were due to extenuating circumstances
I've seen debt ratios up to the high 40's get approved for VA, and other friends of mine have seen debt ratios in the mid 50's get qualified for VA, so it's very possible you'd be OK for a $125k sales price. At a $150k sales price, your debt ratio goes up to about 57% though... not to say that it couldn't qualify, but it has less of a chance.
Adding your wife's income & debts would help you qualify... puts the debt ratio about 41% on that $150k sales price; however if any collections went on credit within the last 12 months, without very good reason and due to extenuating circumstances, that would probably disqualify you from VA.
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