We’ve talked about seller contributions towards closing costs but did you know the seller can pay off a veteran’s debt to qualify? The seller contribution is limited to 4%. Typical VA closing costs in San Diego total about 2-3 % of the selling price; that “extra” 1-2% could be used to “buy the rate down” or to retire the veteran’s debt for qualification purposes.
Here’s a real life example:
One of our borrowers was buying a $380,000 home in Mira Mesa. The seller agreed to pay 4% of the sales price towards closing costs ($15,200). Closing costs for a 5.25% VA loan were about $8,000 while a 4.75% VA loan would have had $16,000 in closing costs.
We opted to accept the higher rate and use the extra $7600 in seller contributions to pay off the veteran’s car loan; this eliminated a $500 payment from the veteran’s debt-to-income ratio. The borrower earned about $83,000 annually and would have had a debt-to-income ratio of 48% which exceeded to VA guideline of 42%.
When we paid off the car loan (using the $7600 in “free” seller contribution), the debt-to-income ratio dropped to 41.6% rendering the loan APPROVED.
Sometimes, you gotta be a juggler to get loans approved in this market.
