Commuting into work is a common reality for many military homebuyers. However, racking up the miles on your car can affect your purchasing power and your VA loan process.
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.
According to U.S. Census data, close to 600,000 full-time workers have a commute of at least 90 minutes and 50 miles.
VA mortgage lenders will often want to consider commuting expenses if you’re driving more than a certain number of miles to work each month.
Fuel and maintenance costs can add up in a hurry with that kind of daily travel, which is why lenders become concerned. Unexpected repair costs or a spike in gas prices can take a big bite out of your monthly budget.
Policies and guidelines on commuting expenses can vary by lender.
Here’s a closer look at how this tends to work and how you can prepare.
A lender will likely look at the miles you’re driving each way, both to work and back home.
Here at Veterans United, we have an allowance of up to 4,333 miles per month in daily commuting and work-related travel expenses.
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.
These are both important underwriting guidelines for VA mortgage qualification.
The VA wants to see a DTI ratio of 41 percent or less. Borrowers with a DTI ratio above that benchmark can still secure financing, but they’ll need to meet a higher threshold for residual income.
For example, let’s say your income is $4,000 per month with major monthly debts of $1,500, making for a DTI ratio of 37.5 percent. But you’ll also be driving 225 miles roundtrip for work if you’re able to purchase the new home.
In this example, we would need to calculate your commuting costs and, if necessary, factor them into your ratios.
Here’s how the math breaks down:
225 miles per day x 5 workdays per week = 1,125 miles per week
1,125 miles per week x 52 weeks = 58,500 miles per year
58,500 miles per year / 12 months = 4,875 miles per month
4,875 total monthly miles – 4,333 monthly allotment = 542 extra miles per month
542 miles x $0.50 = $271 per month for commuting costs
So, in this example, your monthly commuting costs are $271. We would add that figure to the total for your major monthly debts and recalculate your DTI ratio.
In this case, the commuting costs would raise the monthly debt load to $1,771, which would increase the example DTI ratio to about 44 percent.
With the DTI ratio now above 41 percent, this example borrower would need to meet a higher threshold for residual income.
In other words, factoring in commuting costs means this borrower might have a tougher time qualifying for this loan.
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Living outside of town can 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 and residual income requirement is serious business.
If you’re considering purchasing a home that requires a long commute to work, talk with a Veterans United loan specialist in more detail.