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 CharlestonJoint 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 JointBase 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 Charleston
We 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!
