January 7th, 2013 4:32 PM by
How Much Can I Borrow With a VA Loan?
When Charleston Joint Base service members start thinking about a home purchase, a common question arises: “How much can I borrow with a VA loan?”
It’s a simple question; however, the answer is a more complex. Let’s look at the five factors that determine how much a service member can borrow with a VA loan.
Factor #1: The VA Guaranty
The VA loan program doesn’t employ a loan maximum. But in most parts of the U.S., VA lenders cap VA loans at $417,000 because of the VA guaranty.
The VA guaranty is the amount of each VA loan that is backed by the federal government. If the borrower defaults on the loan, that guaranteed amount is paid back to the VA lender by the Department of Veterans Affairs.
Lenders are usually promised 25% backing on each VA loan. But that backing typically maxes out once a loan hits $417,000.
Lenders are free to issue VA loans above that amount, but they won’t be granted additional backing. Since that puts more of a lender’s funds at risk, lenders will often refuse to issue loans over the $417,000 benchmark.
Factor #2: Do You Live in a High-Cost County?
The $417,000 VA loan ceiling applies to most counties in the U.S. maintain. But exceptions are made for 134 high-cost counties.
The higher limits allow Charleston Joint Base service members in the VA’s high-cost counties access to a more expensive market. But those larger loans must be supported by a substantial income, which brings us to Factor #3:
Factor #3: What is Your Debt-to-Income Ratio?
Current income and debts can drastically impact the amount service members can borrow. A yardstick known as the debt-to-income (DTI) ratio helps lenders decide how much additional debt a veteran can handle.
Lenders start calculating the DTI ratio by adding up monthly debts. Only “significant” payments, such as mortgage, car loan, student loan and child support, are figured into the equation. The monthly debt total is then divided by total monthly income to result in a final DTI ratio.
Charleston Joint Base Service members need to strive for a low DTI ratio. Most VA lenders prefer a DTI ratio of 41 percent or lower.
Factor #4: Do You Have Adequate Residual Income?
Residual income also affects the amount a service member can borrow with a VA loan. Monthly residual income is the net income available (after deduction of a mortgage payment and other significant monthly debts) to cover typical living expenses such as food, health care, clothing and gasoline.
The VA employs specific residual income requirements based on region and family size. A Charleston Joint Base family of five, for example, needs to have at least $1,009 left over each month after mortgage and other debt payments in order to meet VA guidelines.
Service members who fall short of residual income standards can often shift to a smaller loan amount for a good shot at VA loan approval.
Factor #5: What is the Property’s Appraisal Value?
VA loans can’t be issued for more than a home’s appraisal value. Should the appraisal value fall short of the purchase price, Charleston buyers have a few options to consider:
· Negotiate a lower purchase price
· Attempt to increase the size of the loan
· Make up the difference in cash
· Walk away from the purchase
Conclusion: Get Preapproved!
With so many factors in the equation, the best way to determine your true buying potential is to get preapproved for a loan.
Through preapproval, a VA lender will assess each of the factors mentioned above (with the exception of the appraisal value). This detailed evaluation helps service members determine a realistic price range, and can be extremely helpful as you search for your next Charleston home.
A VA Loan specialist can determine if you are preapproved for a VA loan – call or email Military Homes Charleston today for assistance.
Military Homes CharlestonWe specialize in helping military families enjoy a smooth PCS in and out of Joint Base Charleston, South Carolina. Buying and selling your home is one of the biggest events of your life. As your trusted Charleston Real Estate Professional, we are 100% committed to helping you the best way we can when you buy or sell your home. We have a passion for helping people, and we love what we do – call 843-410-8014 or email today!