When it comes to hunting for your dream home, here’s one more reason to keep location in mind: Your new drive to the office could wind up costing you.
Close to 600,000 full-time workers have a commute of at least 90 minutes and 50 miles, according to U.S. Census data.
VA mortgage lenders will want to consider commuting expenses if you’re driving more than a certain number of miles to work each day. Fuel and maintenance costs can add up in a hurry with that kind of daily travel, which is exactly why lenders become concerned. Unexpected repair costs or a spike in gas prices can take a big bite out of your monthly budget.
Here’s a closer look at how this tends to work and how you can prepare.
A lender is likely going to look at the miles you’re driving each way, both to work and back home.
Here at Veterans United, we’re going to calculate your commuting costs if the new property would have you commuting more than 2,166 total miles in a month. Every mile over that limit is valued at $0.50, and we have to include the total when calculating your monthly debt-to-income (DTI) ratio and your residual income.
This relationship between your gross monthly income and your major recurring debts is an important factor in VA mortgage qualification. The VA wants to see a DTI ratio of 41 percent or less, although it’s possible to have a higher one and still secure a home loan, albeit after meeting additional requirements. For the sake of example, let’s say your income is $4,000 per month with debts of $1,500, which makes for a DTI ratio of 37.5 percent.
Now, let’s factor in the commuting calculus. Let’s say you’ll be driving 65 miles each way to work if you’re able to purchase this home:
- 130 miles (total commute) x 5 work days per week = 650 miles per week
- 650 miles per week x 52 weeks = 33,800 miles per year
- 33,800 miles per year / 12 months = 2,816 miles per month
- 2,816 total monthly miles – 2,166 monthly allotment = 650 extra miles per month
- 650 miles x $0.50 = $325 per month for commuting costs
So, as far as the lender is concerned, the cost of your commute is $325 each month. Add that to your original debt amount and you get $1,825, which, in turn, would increase your DTI ratio to about 46 percent. Lenders will also need to consider this monthly expense in your residual income calculation. Suddenly you might be in a tougher spot in terms of being able to qualify for this loan.
Living outside of town might mean you can get more house for your money. But keep in mind that your commuting and overall transportation costs could wind up negating those savings.
This doesn’t mean you automatically need to shrink your search area. Just recognize that commuting expenses need to be considered if you’re looking at properties a good distance from your place of work.
Anything that impacts your DTI ratio is serious business. Unless you’ve got additional income streams or ways to offset expenses, the only real solution for many veterans is seeking a lower loan amount, which can put a particular property out of reach.
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