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Summary: Are you a veteran interested in taking advantage of not requiring a down payment for a mortgage? If so, the VA loan may be perfect for you. The question is, how much can you afford in a home purchase in Washington when using a VA loan? This article will help you answer that question.
“I want to use a VA loan to buy a home in Washington State. How much can I afford to borrow?
This is a common question among military members and veterans who use the VA loan program to purchase homes. After all, the amount that you are allowed to borrow will directly impact the type of house you can buy. The loan amount you are approved for will dictate the price of home you will ultimately be able to buy.
Here’s what you need to know about using a VA loan in Washington it.
The debt-to-income (DTI) ratio is one way mortgage lenders determine how much of a VA loan you can qualify for — or any kind of mortgage loan, for that matter. This ratio compares the amount of money you earn to the amount you spend on your recurring monthly debts. It’s generally expressed as a percentage.
For instance, a DTI ratio of 33% shows that about one-third of my income goes toward your debts.
As a general rule, the Department of Veterans Affairs uses a benchmark of 41% for the maximum debt-to-income ratio on VA loans. So anything above that might bring some additional scrutiny. But there are exceptions to this. In some cases, borrowers can have DTI ratios above that level, if they meet certain income requirements.
At the end of the day, your lender will want to make sure that you’re not already maxed out in debt. If you are already carrying a lot of debt relative to what you earn, it could be very difficult for you to manage a mortgage payment on top of it. If your DTI is over a certain amount, you may find adding a mortgage payment very challenging, and may also find it more difficult to get approved for a mortgage.
That said, your lender may be willing to work with you to reduce your mortgage payments by extending smaller loan amounts that will work better with your budget. Of course, you will need to get approved for a certain loan amount, and your lender will use his or her discretion to determine the best course of action.
Related: VA loan limits for Washington
“Residual income” is the household income you have left each month after paying all of your credit accounts (mortgage payments, credit card bills, car payment, etc.). Washington VA loan borrowers with residual income that is 20% higher than the minimum requirement are often given extra leeway when it comes to their debt ratios.
But we’re getting into the weeds here. If you would like to know how much you can afford to borrow when using a VA loan in Washington, please contact us. We can review your financial situation to determine if you’re a good candidate for a VA-guaranteed mortgage loan. We can also tell you how much house you might be able to afford, based on your income and other factors.
Related: VA loan eligibility requirements
If you’re planning to use a VA loan to buy a home in Washington State, it would be wise to get pre-approved before entering the real estate market. This is a good way to figure out how much house you can afford to buy with a VA mortgage loan.
You can think of pre-approval as a kind of pre-screening process. Your mortgage lender will review various aspects of your financial situation, including your current income, debts and assets. They’ll also check your credit to see how you’ve borrowed and repaid money in the past.
The goal here is two-fold:
It makes sense to do this on the front end of the home shopping process. That’s why it’s called “pre” approval. This process gives you a better sense of how much house you can afford to buy in Washington, when using a VA loan. With a specific price range in mind, you can narrow your home search to the kinds of properties you can afford to purchase. That makes you a more efficient home buyer, and increases your chance for success.
It’s also wise to do a bit of budget math for yourself, to determine how much you might be able to spend on your monthly housing costs. Fortunately, the math is pretty straightforward.
To determine how much you can afford to buy with a VA loan, start by looking at your net monthly income and your recurring monthly expenses. These are the two fundamental components you need to get a basic housing budget on paper.
Step 1: Add up your total monthly expenses and debt payments (excluding your housing costs). Depending on your financial situation, this might include credit cards, car payments, student loans, savings account contributions, gas, groceries and more. These are your monthly non-housing expenses.
Step 2: Next, take the total from step one and subtract it from your monthly net income. This is your take-home pay, after taxes. You’re trying to figure out how much money you have left over each month after paying all of your non-housing debts and expenses.
Step 3: The number remaining is the most you could spend on your housing payments. But you probably don’t want to use this entire remainder — that would leave you without an emergency fund. Many financial experts recommend keeping enough money in the bank to cover three to six months worth of living expenses. So you’ll want to work down from the remainder identified in step two, to determine how much you can spend on housing costs.
If buying a home is on your agenda this year, then call Sammamish Mortgage. We are a family-run, local mortgage company in Bellevue, Washington that provides many different mortgage programs to borrowers in Washington State, as well as all of the Pacific Northwest region, including Colorado, Idaho, and Oregon. Contact us today if you have questions about applying for a mortgage.
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