One of the most frequently asked questions military families and veterans have when they’re looking to buy or own a home is, “Can I afford that and how much house can I afford with my VA loan benefit?” Thankfully, the VA loan program brings affordable homebuying opportunities by providing great benefits such as no down payment, competitive interest rates and flexible credit standards. But how much house you can afford isn’t just about your salary and costs, and varies depending on a number of aspects from your income and debts to your credit profile and the local housing market.
By the end of this post, you’ll know how to figure your loan amount, VA guidelines and what you can do to maximize your purchasing power while enjoying the perks of a VA loan.
Understanding VA Loan Basics
VA loans, which are backed by the U.S. Department of Veterans Affairs, are tailored to help veterans, active-duty service members and eligible surviving spouses purchase or construct a home. One of the main positive aspects of VA loans is that they come with no down payment requirements, making them an affordable option for first-time and repeat homebuyers.
If you’re just browsing, take a look at our directory of VA Loan homes for sale, find the perfect home for your needs!
Key Factors That Determine How Much House You Can Afford
While VA loans provide some flexibility, lenders will still consider your financial profile to determine how much you can borrow. Here’s what they look at:
1. Debt-to-Income Ratio (DTI)
Lenders use your DTI ratio to evaluate your monthly debt payments in relation to your gross monthly income. The VA suggests a DTI ratio of 41% but on a case-by-case basis lenders may accept a DTI ratio higher than 41% when the borrower has compensating factors, such as a high residual income.
2. Residual Income
This is the money you have each month after you’ve paid any major expenses. The VA has minimum residual income requirements by family size and location to ensure you won’t be stretched too thin once you factor in your mortgage payment.
3. Credit Score
Though the VA does not require a minimum credit score, most lenders do require scores of 580 or higher. If you need to do some work to beef up your score, our list of VA Loan Lenders for Bad Credit can help you find lenders that have a bit more flexibility.
4. Income Stability
Regular and dependable income from employment, retirement, or disability, or other VA-approved sources boosts your loan application. This factors into not only whether your application is approved but also your available limit.
Estimating Your Affordable Price Range
If you want to quickly estimate the size of the house you can afford with a VA loan, you can use a mortgage affordability calculator. Here’s a general formula:
[Gross Monthly Income] x [41% DTI] = Max Debt Payments
Then take away your other debts (car loans, credit cards, etc.) in that number to see how much still remains for a mortgage. For example:
- Monthly income: $6,000
- 41% of $6,000 = $2,460
- Subtract other debts ($600) = $1,860
- You could afford a mortgage payment of approximately $1,860/month
With your interest rate and length of loan, somewhere in the $300,000 to $350,000 range is a home you can afford with that monthly payment.
Are There Loan Limits?
Yearly, in most counties, of an eligible borrower shoo was deployed and served as a member of the National Guard or Reserves will need to make a down payment ($33,625 in that specific case). Lenders can still impose caps, though, based on your credit and income. Local conforming loan limits may be lower for veterans with diminished entitlement (frequently linked to having a prior VA loan).
Interested in how VA loans stack up against Texas veteran loans? Learn about the Texas Vet Loan vs VA Loan to see which type of financing comes out on top.
Maximize Your VA Loan by Choosing the Right Property
The type of home you select also makes a difference in affordability. VA loans can be used for:
- Single-family homes
- Condos in VA-approved developments
- Modular and manufactured homes (with some restrictions)
- New construction homes
Before making an offer See if the property meets VA Eligible Property requirements. This will help streamline the approval process and prevent potential snags with the VA appraisal.
If you’re wondering how VA loans tie into building your own house, you can also explore What Type of Loans Are Used in the Texas Veterans Land Board Loan Program for land and construction financing options.
VA Loans for Investment or Rental Purposes
A common question among home buyers is: Can I get a VA loan for rental property?
VA loans are designed for owner-occupied properties, but that doesn’t mean that you can’t turn in a rental check. If you will be living in one of them, you can use your VA loan to buy a multi-unit property (up to 4 units). Find out more in our article: Can You Use a VA Loan For a Rental Property.
If you’re interested in a more aggressive investment strategy, it can be an excellent option for building equity on the path to buying another home while covering much of your monthly mortgage payment.
Tips to Increase Your Affordability
Here are a few strategies that can help you buy more homes with a VA loan:
- Pay off debt – Lower DTI increases your borrowing power.
- Improve your credit score – Even a small bump in your score can lower interest rates.
- Use your BAH wisely – Basic Allowance for Housing can count as income and boost your budget.
- Consider a longer loan term – Spreading your loan over 30 years lowers monthly payments.
Ready to Buy in Texas?
The Texas housing market is a hot one for veterans and the military with the easy availability of VA loans in the state. Whether you are stationed near Fort Hood, Lackland AFB or NAS Corpus Christi, VA loans will give you the power to buy a home affordably.
You can start looking into VA Loans in Texas and consider everything you need to know about qualifications, lenders, and homes throughout the state’s cities.
Final Thoughts
So what percent of house can I afford with a VA loan? It will vary depending on your personal finances, but VA loans give you more purchasing power than most conventional mortgages especially since there’s no down payment or PMI involved. Knowing your DTI, becoming familiar with your credit, income, and your lending options will help you shop with added certainty, and be on your way to finding a place to call home.
Whether you’re ready to buy now or still looking around, the VA home loan is one of your best options for veterans seeking to achieve their slice of the American dream.