Buying a home can be an exciting, yet overwhelming time for veterans, active duty service members, and civilians alike.
This process becomes even more stressful when potential home buyers begin looking at homes without having an estimate on the loan amount that they may be approved for, often leading to frustration and disappointment.
VA home loans offer a unique opportunity for military members to purchase a home without many of the barriers that their civilian counterparts face, including large down payments, private mortgage insurance, or hefty closing costs.
However, that doesn’t mean that VA loans are completely fuss-free.
Before you begin looking at houses, it’s important to use a VA loan calculator to determine how much house you can afford, so that you can start working towards financial goals with total clarity.
What Determines My VA Loan Affordability?
To analyze your loan affordability calculations, there are a few key factors that VA lenders will look at to determine how much of a loan they’re willing to offer you.
By gathering this data ahead of time, you can give yourself a better idea of what to expect from the mortgage approval process.
First, you need to evaluate your gross income for the year. For VA loans, you’ll be able to include a wide range of military allowances into your income, alongside your base job pay.
Some of the allowances that can help boost your gross income for a VA loan are military disability payments, flight pay, hazard pay, imminent danger pay, and Basic Allowance for Housing (BAH).
After you’ve calculated your annual income, you’ll need to add up all of your monthly expenses, so you can determine how much money you’ll have for a mortgage payment each month.
Of course, monthly expenses extend far beyond just your electricity and water bills.
The more detailed you can be when calculating your spending habits on food, entertainment, fitness, and other ongoing costs, the more accurate of a prediction you’ll have for your loan affordability.
Next, you’ll need to estimate what your loan term will likely be. Just like with traditional loans, a VA loan term is the amount of time you have to completely pay off your home loan.
Typically, VA home loans have a loan term of 30 years, but some cases may involve a loan term of as little as 15 years, depending on your financial circumstances.
Interest rates are another factor you’ll need to consider for your loan affordability calculations. Most home loans come with some type of interest rate, and VA loans are no exception.
And while interest rates may vary over time, you can get an estimate of what your interest rate will be by researching rates in the area where you’ll be buying your home.
Finally, your property taxes can have a significant impact on your monthly mortgage payments. These taxes will be determined by your location, and are often determined by local legislation.
You can learn more about your potential property taxes by searching for recently sold homes in your neighborhood.
What About My Debt-To-Income Ratio?
If you’ve started looking into buying a home, you’ve probably heard the term debt-to-income ratio (DTI) mentioned in regards to getting approved for a VA home loan.
To put it simply, your DTI shows VA lenders how much you can afford to spend on a monthly mortgage payment based on what percentage of your income is currently being spent on living expenses.
You can calculate your own debt-to-income ratio by combining all of your monthly debts and dividing them by your gross monthly income.
Ideally, your DTI should be no higher than 41% to be approved for a VA home loan.
In cases where the DTI has exceeded this percentage, lenders may require more strict stipulations to ensure that you’re able to pay back your loan in full and on time.
How Does My DTI Impact Loan Affordability Calculations?
Once you’ve determined what you can afford as a monthly mortgage payment, you can get a rough estimate of what your loan affordability may look like.
To do this, you’ll need to subtract your expected property taxes and insurance payments from whatever your maximum monthly payment amount is. The result shows what you can afford to spend on your principal mortgage payment and interest rate each month.
This is the number that your loan officer will use to determine how much of a loan you can afford, based on your loan term and interest rate.
How Can I Prepare For The Loan Application Process?
Whether you’re on active duty or a retired service member, you deserve to get the best possible mortgage on your next home.
Our team of VA home loan specialists has helped countless veterans through the loan application process, starting with expert insight into your loan affordability options, so that you can start searching for the perfect home to meet your needs and budget.