If you’ve been looking at homes near Luke Air Force Base, you’re probably wondering how much you can afford when using your VA home loan benefit. Available only to veterans, those who have served, those who are actively serving in the military, and their spouses, VA loans are unique due to the government-backed guarantee of 25 percent of the loan amount. However, there are specific rules that lenders must follow to benefit from the VA guarantee, which limits how much people can borrow based on the debt to income ratio, also known as debt ratio.
Knowing how much you can qualify for with your VA loan requires you to calculate your debt ratio, which involves calculating other things, like your total debt. Here’s what you need to know about determining the amount you can qualify for with a VA loan:
The VA Debt Ratio
Your debt ratio is a percentage calculated by dividing specific debts by your gross monthly income. For example, if your monthly bills add up to $3,000 and your gross monthly income is $8,000, your ratio will be 3,000 divided by 8,000, amounting to 2.67. The maximum debt ratio limit is 41, and with your ratio of 26.7 percent, you will qualify.
Debt ratios consist of your principal and interest payment, one-twelfth of your annual property tax, homeowner’s bill, and other monthly fees associated with your mortgage. Debt to be included in this calculation is credit obligations like minimum credit card payments, student loans, car loans, and others. If a payment appears on your credit report, it will probably be rolled into your debt ratio calculation. However, it’s important to note that payments like utility bills, food, and entertainment are not part of the ratio.
The Maximum Amount You Can Borrow
A loan officer calculates your maximum VA loan amount by adding your gross monthly income then multiplying it by .41 to get the amount. Using the example salary a while ago, if your monthly income is $8,000, your total debts cannot exceed 41 percent of that, which is $3,280. The loan officer will then subtract your total debt from this figure. For example, if you have a $500 car payment, the result will be $2,780. This figure is the maximum amount you can have for a mortgage payment, including taxes, insurance, principal, and interest. For more precise figures, it’s best to speak directly with lenders, as you’ll need more details to calculate how much from this figure you’ll have left to pay the different parts of your loan.
Other Criteria to Fulfill
Although it’s crucial to ensure your debt ratio falls within the guidelines, you will also need to qualify with other standards, like your credit score and residual income. Even if you have a stellar debt ratio but have a credit score of 620 or below, you may have difficulty securing loan approval. Additionally, if you don’t have a steady income or you aren’t employed full-time, you likely won’t be approved.
VA loans have many benefits that have allowed countless service members to pursue their dream of homeownership. Like other loans, it comes with a set of qualifiers that the borrower must meet to qualify, including the debt ratio. By calculating the amount you can be eligible for with a VA loan, you can start preparing for the loan and looking for the home you’ve always wanted.
Desert Heroes Team is a group of licensed, highly experienced Arizona real estate agents whose goal is to help military families serving the Luke Air Force Base and beyond. We have military spouses and military-affiliated agents who fully understand the challenges of being part of the community, especially when buying a home. Contact us today to get started on your journey to homeownership!