VA loans take a more holistic look at a borrower’s credit and finances to help ensure they can handle the cost of a new mortgage. For Veterans with kids 12 and under, that means factoring in expenses related to childcare.
In these cases, Veterans will need to answer a couple questions about their childcare situation and any associated costs. Often known as a VA Child Care Statement or Child Care Letter, this simple declaration helps lenders better assess the borrower’s overall monthly debts and income.
Depending on the lender you’re working with, you might encounter this as part of an online preapproval process. In other cases, you might need to fill out a document and send it back to the lender.
What is a VA Child Care Letter?
A child care letter is required on a VA loan if the borrower has children under the age of 12. A VA loan requires that childcare expenses are counted as liabilities for qualification purposes. The letter states what if any child care costs are incurred each month, and if none are incurred the reason.
How Childcare Costs Can Affect Your VA Loan
One of the ways lenders assess a borrower’s ability to repay a loan is by calculating their debt-to-income (DTI) ratio, which considers major monthly debts and gross monthly income. With VA loans, monthly childcare expenses are part of the mix.
There’s no hard-and-fast cap on DTI ratio. Limits can vary by lender, loan type and other factors. Veterans whose DTI ratio is greater than 41% need to meet a higher benchmark for residual income, which is basically a discretionary income guideline.
In short, childcare costs are one of the big expenses VA lenders have to consider.
List of VA Childcare Expenses
Certain major monthly expenses can affect your debt-to-income ratio. It’s important to remember that only certain types of debts and income count toward your DTI ratio.
- Daycare Expenses – Daycare expenses can be costly and will affect your DTI. These expenses can sometimes outweigh the cost of your monthly mortgage. Lenders will require that you show your child care written statement showing your monthly daycare expenses.
- Child Support – If you pay or receive child support monthly, you will have to provide documentation of the amounts.
- Residual Income – The VA wants to ensure that borrowers have income left over each month after paying all significant expenses, including mortgage payments.
To get a complete picture of how child care expenses affect your eligibility, speak with a home loan specialist today.
Filling Out the Child Care Statement
Generally, there isn’t much to these letters. You’ll typically need to note monthly expenses for daycare, after-school care or whatever form of paid child care you use.
If you have kids 12 and under but don’t incur childcare costs, then you’ll need to explain why, such as there’s a stay-at-home parent or a grandparent who watches the children.
There may also be cases when your family pays these costs but lenders don’t have to count it as a monthly debt. For example, if your spouse isn’t on the loan but has sufficient income to pay this expense, then you might be able to exclude it. Guidelines and requirements related to non-purchasing spouses can vary by lender.
Talk with a lender if you have any questions about the childcare letter and how these costs can impact your VA loan.
