How Much House Can You Afford?
You’re thinking about buying a house, and you can even visualize the home you want. But can you afford it? To qualify for a VA loan of any amount, you’ll need to have the ability to make the monthly mortgage payment. Proving your ability to pay requires ample and steady income, among other things. So, let’s talk about how much house you can afford.
Income qualification for VA loans involves a few different factors — your source of income, your debt-to-income (DTI) ratio, and your residual income. These points will help zoom in on your price range for a home.
DTI Can Help Determine Your Home Loan Affordability
For the best experience, a potential borrower’s DTI ratio should be 41% or less. A ratio higher than that may require closer scrutiny. Keep in mind that “debts” can include credit cards, car loans, and other expenses, such as taxes and insurance. DTI is all of your anticipated monthly expenses, including your potential house payment, divided by your monthly income before taxes. Keep in mind, that the VA’s 41% DTI threshold is not cut in stone. A lender can sometimes make an exception if a Veteran has enough residual income, more assets, or certain other compensating factors.
How Residual Income Factors In
Residual income is also heavily weighed for VA loan applicants. Simply put, residual income is the money you have left after paying all your foreseeable expenses. As a general rule, you should have enough money remaining to support yourself and your family. The VA provides lenders with a residual income guide based on region and family size. If you have a lot of residual income, you may be able to afford more house.
Prequalifying Can Give You a Price Range
Prequalifying for a VA loan is something you can opt to do early in the process to see how much house you can potentially afford. It’s not loan approval, but prequalifying is a verbal accounting of your income and assets that will be verified with documents later. Typically, a loan officer will calculate your DTI and residual income based on what you’ve told them, and come up with a price range for house hunting.
Now that you’ve got a better sense of how much you can afford, you're ready to start the VA loan process. Get in touch with our team now.
