What Factors Affect VA Loan Affordability?
To calculate how much home you can afford with a VA loan, VA lenders will assess your debt-to-income ratio (DTI). DTI ratio reflects the relationship between your gross monthly income and major monthly debts. Our calculator uses the information you provide about your income and expenses to assess your DTI ratio.
There isn’t a hard cap on DTI ratio for VA loans. Benchmarks can vary by lender and the borrower’s specific circumstances. Buyers whose DTI ratio exceeds 41 percent will encounter additional financial scrutiny, but that’s by no means a strict cutoff.
During the VA loan process, lenders gather debt information from credit reports, looking for big or recurring payments. Expenses like groceries, gas and other lifestyle needs typically do not factor into VA loan affordability calculations.
What Factors Determine How Much House You Can Afford?
As shown in the calculator, key factors affecting VA home affordability are:
- Income declared on your taxes
- Major monthly expenses, including auto loans, student loans, etc.
- Loan term
- Interest rate
- Property taxes and homeowners insurance
Do Lenders Count Military Income?
Lenders can count VA disability income and certain military allowances to determine how much you can borrow with a VA loan. Active duty service members receiving Basic Allowance for Housing (BAH) can use this income to pay for part or even all of their monthly mortgage payment.
Other types of military allowances that can count as effective income include: flight pay, hazard pay, imminent danger pay and more. Lenders can also count National Guard and Reserve income.
Moving? Calculate your Basic Allowance for Housing to see what you can expect based on 2023 rates for your next duty station.
How Does Residual Income Factor into Affordability?
Residual income is a VA loan guideline that looks at your remaining gross monthly income after paying major monthly debts, including the new mortgage payment.
Residual income guidelines vary based on geography and family size. They help ensure VA buyers have sufficient income to weather life’s unexpected challenges, and they’re a major reason VA loans have been the safest mortgage product on the market for most of the last decade.
How Do Interest Rates Impact Affordability?
Interest rates have a direct impact on VA loan affordability. Mortgage rates reflect the cost of borrowing money, and they can vary depending on the lender, the borrower’s credit profile and more.
VA borrowers benefit from having the industry’s lowest average interest rates.
Do VA Lenders Require Mortgage Insurance?
A big reason VA loans are so affordable is that they don’t require mortgage insurance like other mortgage options. This benefit helps veterans and service members stretch their budgets and maximize affordability.
Conventional buyers often need to pay for private mortgage insurance unless they can make a 20 percent down payment.
VA Loan Rates
Interest rates used in the VA mortgage calculator are shown for illustrative purposes only. Your rate may differ based on a variety of factors, including your credit score and the current market conditions. To get your personalized interest rate, start your quote online.