It Begins with Your Financial Picture

When you apply for a VA loan, the VA itself doesn’t lend you money. The lender reviewing your file is providing the funds. The VA simply guarantees a portion of the loan, which gives lenders confidence to offer favorable terms to eligible veterans. However, because the lender is taking on the risk, the are the ones evaluating your finances to determine how much you can afford.

A VA loan underwriter will take a close look at your income, credit profile, debts and assets. Just like with any mortgage, an underwriter will want to be sure you can comfortably afford the monthly payments and not just on paper, but in real life. That means your monthly housing costs need to fit within a certain percentage of your income, a calculation often referred to as your debt-to-income ratio, or DTI.

VA loans tend to be more flexible with DTI limits compared to conventional loans, and it’s not uncommon for approvals to be greater than 50% DTI in certain cases. It is still important to understand that the higher your existing debt load, the less you may qualify to borrow toward your home.

Monthly Payment Is the True Focus

Many first-time buyers focus on the total loan amount they can get approved for, but what truly determines affordability is your monthly mortgage payment. This includes more than just the principal and interest on the loan. The property taxes, homeowners insurance, HOA dues (if applicable), and in some cases, the VA funding fee, all get factored in.

Because there’s no private mortgage insurance with a VA loan, even if you put nothing down, your monthly payment may be lower than a similarly sized FHA or conventional loan. That’s a real advantage and can allow you to afford more house for the same monthly budget.

Still, a VA loan underwriter will want to ensure that your total housing costs fall within a manageable percentage of your income. While VA loan guidelines allow for some flexibility, every lending institution has their own comfort zone. For this reason, working with a mortgage broker can, at times, offer greater flexibility as they will have relationships with many institutions to be able to help you based on your scenario.

Residual Income - The VA’s Unique Safety Net

One thing that sets VA loans apart from other loan types is the requirement to meet residual income standards. Residual income is the amount of money you have left over each month after all major obligations have been paid including the mortgage, taxes, debts, utilities and so on.

This requirement is unique to VA loans and is designed to make sure that veterans and military families aren’t financially overextended. The VA has published guidelines based on region and family size that lenders use to evaluate whether you are likely to be able to manage your loan payments and other living expenses.

In some ways, residual income is a more accurate measure of affordability than DTI alone, because it takes into account real-life living costs. If your residual income is too low for your family size and location, your loan approval might be scaled back even if your credit score and DTI are within acceptable limits.

The Role of Credit and Interest Rates

While VA loans do not technically have a minimum required credit score, a lending institution will almost always have criteria they follow. Most prefer to see a credit score of at least 620, and some will go lower depending on the overall criteria of your scenario.

A lower rate can significantly increase your buying power because even a small reduction in interest can translate to hundreds of dollars in monthly savings. Over a 30 year mortgage, that can mean tens of thousands of dollars. The good news is that you can utilize the IRRRL (interest rate reduction loan) at a later time to help lower your payment, after you have purchased the home.

The Down Payment Question

One of the most popular features of the VA loan is the no down payment option. You can finance 100% of the purchase price with no requirement to put money down. However, just because you can skip the down payment doesn’t always mean you should.

Some scenarios could turn into you needing to put a down payment. For example, if you were pre-approved for your VA loan for $400,000, and found a home for $425,000. In order to purchase the home, you may need to put a down payment of $25,000 to purchase that home, depending on the mortgage payment, taxes, insurance and your liabilities.

With that said, many veterans are able to successfully purchase a home with no down payment and no issues, especially when their income and debts are inline for the home purchase.

What You Can Afford vs. What’s Available in the Market

Once you are pre-approved, you will have a clearer picture of what you can afford on paper. But, the next step is comparing that figure to what’s actually available in your desired market.

In some areas, especially high cost cities, you may find that the amount you qualify for doesn’t stretch as far as you hoped. In others, you might discover you can afford more than expected. This is where a good real estate agent can help you strategize in finding neighborhoods or types of properties that match your price range without compromising your priorities.

If you’re shopping in a higher cost county, it is also worth noting that VA loan limits still apply in certain scenarios, and particularly if you have diminished entitlement because of a previous VA loan or default. For most veterans with full entitlement, there is technically no maximum VA loan amount as long as the VA underwriter is willing to approve the home loan based on your qualifications.

The Bottom Line for Your VA Loan

So, how much home can you afford with a VA loan? The answer depends on your income, debt, credit, family size, location, and goals. For some, it might be a $250,000 starter home in a rural town. For others, it could be an $800,000 property in a growing suburban area. There’s no one size fits all answer. With the VA loan, you will often have more flexibility, more buying power and more options than almost any other loan program available.

The best way to find your number is to contact us to discuss your VA loan and work on next steps including working on your pre-approval. From there, you will not only know what you can afford, you will have a stronger hand when it comes time to make an offer on a home.

The VA loan isn’t just a benefit. It's a bridge to homeownership. When used strategically, it can help you not only buy a house but build long term financial stability along the way.