If you are an interested home buyer, and you have kids or other dependents in your life, you may be wondering how this may affect your mortgage qualification. If this is the case, then this article is for you.
Before approving your mortgage application, lenders look at your financial background and status. They do so to ensure that you will be able to pay off your house loan. They are generally risk averse and want to take on reliable borrowers. So, does having dependents affect mortgages?
In this article we discuss the ways dependents may affect different types of mortgage applications, lending rates, and more.
Does Having Dependents Affect Mortgages?
Yes, it is possible that house loan lenders may take into account the number of dependents you have in your household. This is because they are considered additional costs that you have to support.
However, this depends on which type of house loan you apply for.
Which Type of Loan Does Not Factor in Dependents?
For conventional home loans, lenders commonly do not weigh your number of dependents in deciding whether you should be approved for a home loan. The main factor lenders look at for these conventional loans is your debt-to-income ratio.
Lenders calculate debt-to-income ratio using your monthly gross income and debt payments. This ratio determines the amount of mortgage that the lender believes you can afford.
In this case, the presence of dependents indirectly affects the mortgage you can afford. Additionally, banks use the Household Expenditure Method or HEM to calculate your living expenses. Again, dependents inversely affect how much you can borrow from banks for home loans.
Loans that Factor in Dependents: VA Loans
First, VA loans, or those offered to veterans, will check into your residual income. Lenders find your residual income by checking the following:
- Mortgage payments
- Property tax
- Homeowners insurance
- Monthly debts
- Other housing expenses
Moreover, the amount of your residual income also depends on: where you live, the size of your household, and how many dependents you have. The more dependents you have, the higher your residual income needs to be to qualify for a VA loan.
VA mortgage lenders use the VA loan analysis to calculate your residual income. It uses the age of your dependents to determine the residual income requirement.
Loans that Factor in Dependents: USDA Loans
Second, USDA loans are also directly affected by the number of dependents you have in your house. This is because the USDA house loans’ program guidelines apply a household income limit to qualify. The limit is 115% of the median household income for the area.
To determine your household income, your lender figures out the monthly gross income for each member of the household and subtracts from it based on the number of children, full-time students, disabled dependents, and elderly dependents in the property.
Yet, in the case of a USDA loan, having more dependents is a good thing. This is because it reduces your household income, making it more likely you will qualify for the loan.
And there you have it. You can see the answer to the question “does having dependents affect mortgages?”, the answer is yet. But, in some cases, it can actually help you.
We hope you learned more about how dependents may affect your mortgage application and rates for whichever type you apply for.