26 Dec How Much Does A VA Loan Cover?
One of the most important things that need to be answered when thinking about purchasing a house and utilizing your VA home loan benefit is, “How much does a VA loan cover?” VA loans are guaranteed, meaning a government-backed guarantee of 25% of the loan amount is attached to each loan that the VA lender approves.
The guarantee is effective as long as the lender complies with recognized VA lending criteria. Instead of approving the loan, the VA sets forth precise guidelines that lenders must go by to be eligible for the VA guarantee. One of those regulations sets a cap on the amount you are permitted to borrow based on a calculation known as the debt-to-income ratio, or just the “debt ratio.”
The VA Debt To Income Ratio Criteria
Unlike VA home loan funding fees, Your VA debt ratio is determined by dividing some financial obligations by your gross monthly income. It is expressed as a percentage. Suppose your gross monthly income is $6,000, and your monthly bills, including your mortgage payment, total $2,000. In that case, your ratio is $2,000 divided by $6,000, or.30. In this case, the ratio of 30 qualifies because the maximum VA debt ratio is 41.
Your monthly principal and interest payments, one-twelfth of your annual property taxes, your homeowner’s bill, and any other monthly mortgage-related costs, such as homeowner’s association or condominium dues, make up your debt ratio.
Other debts, such as a car loan, the minimum payment on a credit card, and college loans, among others, must be considered when calculating your VA debt ratio. The payment will likely be considered when calculating your debt ratio if it appears on a credit report.
Utility bills, cell phone bills, meals, and entertainment costs are monthly expenses excluded from your debt ratio.
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Maximum Loan Amount You Can Qualify For
A loan officer adds up your gross monthly income and multiplies it by.41 to determine your maximum VA loan amount. Your total debts cannot be more than $41% of your monthly salary ($6,000 in this case) or $2,460.
The loan officer then deducts the qualifying debt from the $2,460 total. Let’s say there is a $150 installment loan and a $300 automobile payment. Now, the total is $2,010.
The highest amount you are permitted to pay monthly for a mortgage, including principal and interest, taxes, and insurance, is $2,010, according to VA financing criteria. Your loan officer will use projected figures if you haven’t chosen a property and don’t have tax and insurance information.
The monthly insurance cost is $167 if the yearly property tax bills for properties similar to those in which you are interested are around $2,000 per year. An agent can provide you with a price for homeowners insurance, although typically, it costs half of one percent of the loan balance. The monthly insurance payment, in this case, is $83.
Finally, the loan officer takes $2,460 from your maximum allowable amount and subtracts the expected tax and insurance payment, leaving $2,210 for principal and interest. The loan amount associated with a $2,210 payment is then determined using the loan term and current interest rates. The maximum VA loan amount is a little over $309,000 if the loan is a 15-year mortgage at 3.50% with a $2,210 principal and monthly interest.
Eligible Credit Score For VA Home Loans Near Me
One of the criteria a lender must adhere to approve a VA loan request is the debt ratio. You must also meet credit requirements, residual income, and a stable job. If your credit score is below 620, securing loan approval from a VA lender will be challenging—even if your debt ratio is 20, much below the 41 limits. You might not be accepted if your income is unstable or you aren’t currently doing a full-time job.
One more thing: You are not compelled to borrow the $309,000 your debt ratios enable you to just because they do. Borrow only what you can afford to pay back each month. Consider your loan options carefully and talk with your loan officer about them.