When asking yourself ‘can I afford to buy a house with a VA home loan,’ first, you’ll need to calculate how much house you can afford. Then you need to determine a few basic items like your total household income and how much debt you have (loans and /or credit card bills).
Next you need to figure out the amount of savings you have available for the down payment. The banks will only consider the debts you currently have when evaluating your affordability. If you have a retirement account, or if you’re saving $300 a month for your annual vacation, the bank won’t take that into consideration when figuring out what you can afford. It’s best to be honest with yourself and your bank. List all your income, as well as all your expenses that are funding, any outside accounts to determine if your income to buy a house using the VA loan is possible.
The Key Factors To Consider When Asking Can I Afford To Buy A House
Your monthly income. Listing your income will help determine how much you can afford every month.
The cash reserves for the down payment and closing costs. Your cash reserves will prove that you have enough for the required down payment and enough to cover the closing costs.
Your monthly debts or expenses. Showing your debts and /or expenses allows you to see what other monthly obligations you’ll have in addition to a mortgage payment.
Your credit score. Your credit profile will determine the amount of interest you’ll pay on your loan and how much money the lender will let you borrow.
Knowing how much you can afford before you start your home buying search will help you stay within a comfortable range when it comes to your monthly mortgage payments. Having a reserve savings account with three months of payments that includes your mortgage payment and your other monthly bills is a great rule of thumb and will help you with any unforeseen circumstance(s) that may arise once you’re in your new home.
See How Much Home Can You Can Afford?
Can I Get Cash-Out With An IRRRL?
Unfortunately, there aren’t any cash-out options with an IRRRL, however, there is an exception of up to $6,000 in the case for energy-efficient improvements. The lender may require you to prove the upgrades will provide an actual return on the investment by having an energy audit of your home.
What is DTI or Debt-to-Income Ratio? How Does It Impact If I Can Afford To Buy A House?
The Debt-To-Income ratio, or DTI, is an important metric that banks use to calculate the amount of money you can borrow. It compares your DEBT, including your mortgage, the insurance, plus the property tax, to your monthly pre-tax INCOME. Typically, housing expenses shouldn’t exceed 28% of your monthly income, although you might qualify for a better interest rate, depending on your credit score. There’s an easy formula, and if you aren’t a numbers nerd don’t let all these numbers scare you away. It’s quite basic and easy to figure out.
This process can also be reversed to figure out your housing budget by simply multiplying your income by 0.28. We take the amount of your monthly income of $5,000 and multiply it by 0.28 to get a DTI ratio of 28% (5000 x 0.28 = 1,400). Again, this is the formula that the banks use, and if you have a high enough credit history, you might qualify for a higher loan amount with a better debt to income ratio
Can I Afford To Buy A House With An FHA Loan?
Financing a home with a Federal Housing Authority, or FHA, loan is an affordable way to get into a home for those who have an adequate monthly income but not enough for a large down payment. The FHA loan only requires a minimum of 3.5% as a down payment, making it a great option verses using the conventional loan, since conventional loans usually require a 20% down payment. The FHA loans are backed by the government and have relaxed qualifying standards and are something to consider for those who have less than perfect credit scores.
How Much Can I Afford With A VA Loan?
For our military members, the option of a VA loan is the best deal available. These mortgages are backed by the Department of Veterans Affairs. VA loans do not have a minimum down payment requirement and are available for those with an average 600 credit score or higher. In a conventional loan, the borrower will need to pay a 20% down payment in order to avoid paying the private mortgage insurance, or PMI. For those who are using the VA Home Loan benefit, no down payment is required, and there is no PMI since the VA guarantees the loan. Depending on the amount of the loan, the savings on the PMI alone can be quite significant.
Would You Like To Learn More About How To Refinance A VA Mortgage With An IRRRL?
Aligned Mortgage offers a FREE VA Home Loan Buying Seminar every month, explaining the power of the benefit. Come join Hawaii’s #1 VA Lender and learn how to use your BAH to build your legacy. Contact us today at 808.677.5626 or register now for an upcoming seminar.