By Mandy Rebmann
Maybe you’ve just started thinking about owning a home, or maybe you already have a property in mind. One of the biggest questions facing potential homeowners is how much of a loan can they get? Can you really afford that perfect house you’ve had your eye on? Or, if you haven’t fallen in love with a house yet, what should your ceiling price be?
Veterans have an added benefit when they apply for a home loan – the VA loan. The rates are often better, the loan is guaranteed by the government so the eligibility can be easier but it’s no easy road to get to closing. Because the loan is backed by the government, the amount of red tape and paperwork seems to never end.
Before applying for a loan, you should obtain your Certificate of Eligibility (COE) which shows you are eligible to use a VA loan. Requesting the COE may be done online, by mail or through your VA lender. When applying, the lender will need your original COE, which verifies you are eligible for a VA-guaranteed mortgage.
You should also have a credit score of 620 or higher. The higher the credit score, the more likely you are to be approved for your loan.
How much of a loan you qualify for depends on a two basic factors - what your income is and how much debt you carry. If you carry less debt, more of your income can be used towards your housing payment.
APPLYING- How Much of a Loan Can I Get?
- Underwriters look at your monthly Debt-to-Income (DTI) ratio, which should not exceed 41%. This means that your proposed monthly housing payment and other monthly debts should not exceed 41% of your monthly income. For example, if your monthly income is $5,000, your proposed housing payment is $1,000 and all other debts are $1,000, you would qualify based on DTI. 2000/5000 = .40 or 40%.
- This calculation can help you figure out how much of a house you can afford. Multiply your monthly income by .41, and then subtract your monthly debt payments. The remainder is your monthly housing payment limit.
- Monthly debts include car, additional housing, credit card, and installment payments. They may also include alimony, child support and child care costs.
- VA underwriters also look at Residual Income. Residual Income is “leftover” money after debts are paid. The amount of Residual Income you are required to have is based on how many people are in your household family and what region you live in.
APPLYING- What Do I Need to Do?
- After finding a VA Loan lender, you will need to complete an application, which will ask you basic identification, income, and asset questions.
- Underwriters will verify the information provided on the application, specifically the amounts listed for your income and assets.
- Income verification tends to be easier for those who receive regular paychecks and W2s. Often, your last two paystubs, or LES’s, and the last two years of W2s will suffice. It gets a little more complicated for the self-employed, or those who receive 1099s. Since that type of income is not as easily verified, be prepared to have to provide tax returns, additional bank statements, and possibly, letters of explanation from employers.
- Asset documentation will include at least the last two months bank statements, and possibly the last quarterly statements for other investments, such as 401Ks or other retirement accounts. Large deposits may need to be explained and sourced. Online printouts are generally not accepted.
It will be important for you to stay in close contact with your lender throughout the process, in case something unexpected comes up. VA loans may seem more difficult to obtain than other types of mortgages, but for the most part, the benefits definitely outweigh the added steps.
