If you know that you are eligible for a VA loan, you may wonder what you can afford. Does the VA automatically allow you to borrow the maximum amount ($453,100 in 2018 and $484,350 in 2019)? Do you have to qualify for the amount?
One thing is for certain – you don’t automatically qualify for the maximum amount. You may be eligible or the full amounts discussed above, but you must prove that you qualify for the loan amounts before you can actually get the loan.
Keep reading to find out how you qualify.
Meeting the Disposable Income Requirement
The VA has the most flexible guidelines out of any loan program today. One area they don’t budge, however, is in the disposable income requirement. No other loan program has this requirement, but the VA swears it is how they keep their default rate as low as it is.
The VA has minimum disposable income amounts for each area of the country. The amount you need will vary based on your family’s size. The more people you have in your family, the more disposable income you need. Your VA lender can help you understand the disposable income requirements for your area and/or family’s size.
If you don’t meet the disposable income requirement, you may still qualify for the loan that you need, but you’ll have to have compensating factors.
Avoiding the Maximum Debt Ratio Requirement
The VA doesn’t put a lot of emphasis on debt ratios, but most lenders won’t allow you to go over 43% of your gross monthly income. This total debt ratio includes:
- The principal, interest, and mortgage insurance
- Credit card payments
- Personal loan payments
- Student loan payments
- Any other mortgage payments
The amount of house you can afford with a VA loan will be based on this debt ratio with most lenders.
Maximizing Your Compensating Factors
Now, if you have a debt ratio that exceeds the 43% or you don’t have enough disposable income, you may still qualify for the house you want with compensating factors. They include:
- A great credit score- The VA doesn’t put emphasis on your credit score, but lenders do. The higher credit score you have, the more likely a lender is to give you the loan amount you need. Try getting your credit score as high as 700 for the best results.
- A low debt ratio – Lenders also focus on debt ratios even though the VA doesn’t. Try keeping your DTI as low as you can. You can do this by paying off your other debts before applying for a VA loan.
- A down payment – Technically, you don’t need a down payment for a VA loan, but if you do, you may be able to buy more home. The higher your down payment is, the less risk the lender faces with you defaulting on the loan.
The VA Allows 100% Financing
Keep in mind that the VA does provide 100% financing, up to the maximum guaranty. In 2019, this will be $484,350. This doesn’t mean that you can only buy a home for that amount. You can make a down payment on the difference between your guaranty and the purchase price if you qualify for the higher loan. The down payment will be equal to 25% of the difference between the guaranty and the purchase price.
If you can swing the down payment and your debt ratio and disposable income amounts will be within the range that the VA requires, you may still get a higher loan amount than the maximum VA guaranty.
It pays to shop around with different lenders to see what they may allow. The VA doesn’t make the decisions – the VA lenders do. Each lender may have different requirements. Shop around to see which lender will give you the loan amount you need to buy the home of your dreams.