topic Re: VA Home Loan/DFAS Debt in Mortgage Loans

VA Home Loan/DFAS Debt

Anonymous — Tue, 03 May 2011 22:59:41 GMT

Hi Shane,

I am looking for some guidance for buying my first home. Im 24, my wife is 24. Both of our FICO scores are between 770 and 790. I served 5 years in the Navy and just got out a few months ago. I opted for an early seperation, which come to find out now puts me into a bit of debt. DFAS, the military pay and debt agency says I owe them 45k. After disputing and tons of paperwork I still have to pay this back over 3 years, which is about $1300/month. This however does not report to the credit bureaus. They told me they only report it if it is late. I have checked, and it still is not reporting, and I am current on payments. We have 75k to put down on a house, and our annual salary together is 130k. The only other debt we have is my car, 350$/ month for 2 more years. I have heard from some people that the VA home loan agency will see the DFAS debt, and a private bank like Wells Fargo wouldn't since it isnt on my credit report. I have spoken to representatives with DFAS and it leads me nowhere. Anyone who deals with them or the VA in general would be able to tell you how much of a head ache they can be. Does anybody know if a private bank will see the DFAS debt, and how it will impact us getting approved for a mortgage? Would I not be able to get a VA home loan with this debt? And, would I be better off/more likely to be approved with the VA home loan or with out.

I have read here that <45% debt to income ratio is required. I was wondering what price range we should look at. So far were looking at 275k range, which here in NJ doesnt get you all that much stil. If we put 75k down and bought something for 275k, the estimated monthly payment with property taxes according to the realtor is $1402/month. Including the $1300 and $350/month we have, that puts us at about $3100/month. Since we gross about $10k/month what do you think we should consider doing?

Thank you to anybody for any help at all.

Re: VA Home Loan/DFAS Debt

ShanetheMortgageMan — Tue, 03 May 2011 23:45:14 GMT

With any mortgage application, all debts need to be disclosed whether they are on the credit report or not. That said, the payments on the DFAS debt would need to be included in your debt ratio when determining if you could qualify. Having that debt isn't viewed as a bad thing - it's when payments aren't made on debts then underwriters don't like that.

As you know, VA mortgages can do 100% financing, so if you were looking to put as little money down as possible then VA certainly would be a great option. Even if you have the DFAS debt you could still get a VA mortgage as long as you have enough entitlement - have you requested your Certificate of Eligibility? You can do so online at https://vip.vba.va.gov/portal/VBAH/Home (click user registration on the left). Even with 100% financing on a $275k sales price, with the DFAS & car payments, your debt ratio would only be about 33% and that is fine to qualify. Putting more money down would just lower the debt ratio further, so I woudn't be too concerned about the debt.

With your scores, if you are putting down 10-15%, you should compare VA vs. conventional where you pay an upfront mortgage premium in lieu of a monthly mortgage insurance amount - it'll be a close comparison but then you may be able to save your VA entitlement if you buy a bigger home.

VA loans have particular guidelines when it comes to using income from a recently discharged veteran, because some veterans have little or not work experience otheir than their military occupation. If the job skills & duties of your current job were similar to those in the military then it's a very good sign an underwriter will find the employment acceptable. This is also important for other mortgage types as well.

Re: VA Home Loan/DFAS Debt

Anonymous — Wed, 04 May 2011 01:47:17 GMT

Shane,

Thanks a lot for your insight. I'll have to discuss things with a lender then to see which would suit me best. I wasnt aware I could only use the VA entitlement once. I saw somewhere that you can apply for it through the lender at the same time of the mortgage. It would be better to have it done before hand though. We would put down 20% either way, so maybe if we could only use it once the best option might be to save it for later. I was nervous about having this debt reported and having it hurt my chances of getting approved for a mortgage.

With all that being said, in these times with the market this way, would you say it is a better idea to buy now? Or rent for a year and see where things go?

Re: VA Home Loan/DFAS Debt

ShanetheMortgageMan — Wed, 04 May 2011 01:59:13 GMT

You only have so much entitlement available, and it can be restored when you pay off a VA mortgage, but if you decide to hold onto this home and purchase another home later, then you would have to refinance out of the VA loan in order to use it again (there are some situations where you can use the bonus entitlement). You don't apply for entitlement, you already have entitlement, it takes about 17 seconds to check it on that website. I am not completely familiar with early separation so I am not sure if that can affect your available entitlement.

Real estate is local, and each person's for buying a home are their own, so I can't say for certain if you should or shouldn't buy a home in the area you are thinking about. If you think you'll be in that area for a good amount of time, at least 6-7 years, then buying a home is something you should consider if it also makes financial sense. However I don't think home values are going to increase rapidly anytime soon.

Re: VA Home Loan/DFAS Debt

Anonymous — Wed, 04 May 2011 02:10:16 GMT

Thanks, I checked and I got a COE already. I was shocked to see the entitlement was for 36,000. I saw on the VA site the basic entitlement for vet's is 36,000. "...entitlement up to the present maximum of $36,000 (or up to $104,250 for certain loans over $144,000)." Im sorry to seem ignorant but how does that translate into being covered 100% for up to 417,000 as on the VA site. I assume that since I have a COE I will be good to go anyway?

Re: VA Home Loan/DFAS Debt

Anonymous — Wed, 04 May 2011 02:15:19 GMT

Yours may be different, but I just closed on my VA loan and WAS under an 83 dollar a month DFAS payment plan for prior overpayment. I was made to pay that off in full for my loan, every situation may be different though. Neither my LO nor the underwriter requested this... It was some VA guideline that somehow nabbed that "liability" flagged it and requested it to be paid.

Re: VA Home Loan/DFAS Debt

Anonymous — Wed, 04 May 2011 02:19:06 GMT

Really? Well I dont think I'll be paying off a $45,000 bill by this summer. Maybe its best to wait till the next house to use it. Was the COE an entitlement for 36,000? How exactly does that figure into being covered for a home loan. 36k doesnt exactly cover a mortgage.

Re: VA Home Loan/DFAS Debt

Anonymous — Wed, 04 May 2011 02:20:41 GMT

I forgot to mention... mine WAS on my credit report, I didnt know I had the debt until it was on my report and thats when I contacted them to make payment arrangements. Never once recieved a letter from DFAS stating I was overpaid by a half month (it was only 2200 bucks). I would think that since yours isnt on your report, mentioning it at all to your LO would be against your best interest, seriously!

Re: VA Home Loan/DFAS Debt

ShanetheMortgageMan — Wed, 04 May 2011 02:22:59 GMT

Yup, you have full entitlement and would be good to go are far as meeting eligibility. Here's a post that explains how the $36k basic entitlement translates into purchasing power, as well as when the bonus/2nd tier entitlement would kick in. Here are also 7 different examples that VA has provided.

Re: VA Home Loan/DFAS Debt

Anonymous — Wed, 04 May 2011 02:23:27 GMT

yes the COE was for 36000 which means you get the FULL amount of entitlement. Dont EVER mention DFAS.. if its not on your credit report they WILL NOT know you have it, period! Dont mention the debt or payment amount on your loan app either.

Re: VA Home Loan/DFAS Debt

Anonymous — Wed, 04 May 2011 02:25:05 GMT

Ha, thanks. I question the credibility of it. How can they force me to pay something, but only report it if I am late? That doesn't seem to help me at all. I would think it would look good to see I have that and I am in good standing. Oh, because its the government.

Re: VA Home Loan/DFAS Debt

ShanetheMortgageMan — Wed, 04 May 2011 02:25:43 GMT

@Anonymous wrote:
I forgot to mention... mine WAS on my credit report, I didnt know I had the debt until it was on my report and thats when I contacted them to make payment arrangements. Never once recieved a letter from DFAS stating I was overpaid by a half month (it was only 2200 bucks). I would think that since yours isnt on your report, mentioning it at all to your LO would be against your best interest, seriously!

Unless their best interest is to stay out of federal prison - because not disclosing debts you are obligated to pay is mortgage fraud.

Re: VA Home Loan/DFAS Debt

Anonymous — Wed, 04 May 2011 02:26:03 GMT

Great, thanks guys for your help.

Re: VA Home Loan/DFAS Debt

Anonymous — Wed, 04 May 2011 02:26:04 GMT

They will only be able to find out debts to the VA... other than that they just check your credit... use a money order this month and next to pay so they dont see the debit from your bank acct.

Re: VA Home Loan/DFAS Debt

ShanetheMortgageMan — Wed, 04 May 2011 02:26:46 GMT

@Anonymous wrote:
if its not on your credit report they WILL NOT know you have it, period! Dont mention the debt or payment amount on your loan app either.

Please do not provide that advice anymore.

Re: VA Home Loan/DFAS Debt

Anonymous — Wed, 04 May 2011 02:28:57 GMT

I guess you could say its fraud, even if it is a bit too tight these days. 1300 a month can kill the DTI even if he can afford it. I mean really, people that dont use VA dont have to disclose their daycare that can be over a grand... its all screwy

Re: VA Home Loan/DFAS Debt

Anonymous — Wed, 04 May 2011 02:30:58 GMT

Well as of right now I only pay 300/month for it. I disputed it, so for the next year it shows up at my door every month as a 300$ bill. Maybe for now it wont look too bad?

Re: VA Home Loan/DFAS Debt

Anonymous — Wed, 04 May 2011 02:34:16 GMT

300 is dealable... 1300 will more than likely take your ratio out of range even if in all honesty you CAN afford it along with a mortgage. I think it needs to be more fair across the board. EVERYONE reveals ALL monthly obligations... there should be a clear standard. I think its unfair that because I have kids I have to count daycare costs as debt for the VA loan but not conventional.

Re: VA Home Loan/DFAS Debt

Anonymous — Wed, 04 May 2011 02:37:08 GMT

Yeah that seems unfair. Honest people are at a disadvantage. How could they tell if there is nothing reporting on something like day care?

Re: VA Home Loan/DFAS Debt

Anonymous — Wed, 04 May 2011 02:37:23 GMT

I closed on this past thurs... All my debts that I had/have were on my CR so they kind of disclosed themselves. The process was pretty simple and smooth asside from some 4506T issues that I think were due to them inputting the wrong name or social... They counted all of my wifes student loans even though they are deferred, which is understandable since they have to be paid at SOME point.