How much house can you afford with a VA loan?

If you’re a veteran, active-duty service member, or a surviving spouse, you may be eligible for a special type of mortgage called a VA loan. Once you qualify for a VA loan and show you have a Certificate of Eligibility (COE), VA loans have many advantages over other types of mortgages, which include easier qualification, no down payment requirements, and competitive rates.

If you’re hoping to use a VA loan to buy a home, you might be wondering how much home you can afford. The answer can be complicated and depends on factors like your location, finances, credit score, and more. We’ll break down the key things you need to know.

Use a home affordability calculator

One good way to estimate how much home you can afford using a VA loan is to use a home affordability calculator, like the one offered by Rocket Mortgage.

To use the calculator, you’ll need to enter details like your income, the type of home you want to buy, your credit and borrowing history, and location. We’ll cover more about how these factors influence how much home you can afford below.

Based on your inputs, the calculator will recommend a maximum budget for a home.

The 28% rule

One popular rule of thumb for estimating how much home you can afford is the 28% rule. This rule states that you should spend no more than 28% of your gross income on housing each month. For example, if you make $4,000 per month, you should spend no more than $1,120 per month on your mortgage and housing costs. If you make $10,000 per month, you can spend as much as $2,800.

What are the VA residual income charts and requirements?

When you apply for a VA loan, you may need to meet specific residual or discretionary income requirements. Residual or discretionary income refers to the money you have left over after paying for major expenses, such as your mortgage.

The requirement will vary depending on the size of your family, the amount of your mortgage, and where you live.

Factors that impact how much house you can afford with a VA loan

As with any loan, lenders who offer VA loans will want to be sure you can afford to pay the loan back. How much a lender is willing to lend, and therefore how much home you can afford, will depend on the following factors.

Credit score

When you apply for any loan, lenders will look at your credit score. This is a numerical representation of how likely you are to repay your debts. In general, VA lenders will expect a credit score of 580 or higher for you to qualify for a loan.

However, higher scores are still beneficial. The higher your score, the less risky you are as a borrower, which lenders tend to reward with things like lower rates or higher maximum loan amounts.

Income

Your income plays a big role in how much house you can afford. The more you make, the more a lender is likely to be willing to lend to you.

Lenders want to see verifiable and consistent income. Be ready to have two years of tax returns ready to show proof of income, as well as recent pay stubs and bank statements, or documentation of any benefits you receive.

Debt-to-income ratio

Your debt-to-income (DTI) ratio is the percentage of your monthly income that you spend on debt payments. For example, if you make $5,000 a month and spend $400 on a credit card payment, $600 on a student loan payment, and $450 on an auto loan payment, your DTI ratio is ($400 + $600 + $450) / $5,000 = 29%.

The lower your DTI ratio, the more money you have available to handle payments on a new mortgage, meaning you can afford a more expensive home. The VA does not set a maximum DTI ratio for mortgages, but many lenders require that your loan leave you with a DTI no higher than 45%.

Down payment

When you buy a home, you can put down a portion of the price of the home upfront. This is called a down payment.

VA loans don’t require a down payment, which is one major perk of using a VA loan. However, that leads to a higher loan amount and higher monthly payment, which can make it harder to afford a more expensive home.

Down payment example

Imagine you want to buy a home that costs $350,000. You get approved for a 30-year mortgage with a 7% interest rate. Before taxes and insurance, your monthly payment would be $2,328 if you made no down payment.

Now, imagine you decided to make a down payment of $35,000, or 10%. You’d have to borrow just $315,000, which would result in a principal and interest payment of $2,095, a bit more than $200 less per month.

Offering a down payment can help lower your monthly payment and make a property more affordable.

Interest rates

The interest rate of your loan has a direct impact on the monthly cost of your home. The lower your loan’s rate, the less interest accrues and the less you’ll pay each month.

For example, a 30-year fixed-rate loan of $400,000 at a 7% interest rate results in a monthly payment of $2,661 for principal and interest. The same loan at a 6% interest rate has a monthly payment of $2,398. In this example, a 1-percentage-point difference results in a monthly savings of $263.

Securing a lower rate can let you borrow more money at the same monthly cost, making a more expensive home more affordable.

Loan term

When you apply for a loan, you can select its term. This is how long it will take to repay the loan by following the minimum payment schedule. Shorter loan terms usually come with lower interest rates and leave less time for interest to accrue, saving you money overall. However, the monthly payments for longer-term loans are lower, which can make it easier to fit your housing costs into your budget.

For example, a $250,000 loan with a 15-year term and a 7% interest rate costs $2,247 monthly before taxes and insurance. However, doubling the term to 30 years results in a $1,663 payment, thereby increasing affordability.

Property taxes

Property taxes help to fund services offered by local governments, including schools, parks, road maintenance, and more. How much you pay in tax will depend on the tax rate where you live and the assessed value of your home.

Your lender will usually add your taxes to your monthly mortgage payment, so living in a more expensive home or higher-tax area can mean higher tax payments, reducing affordability.

Depending on where you live, you may be eligible for exemptions that can reduce the tax you owe, helping make some homes more affordable.

Homeowners insurance

Almost every mortgage lender will require that you buy homeowners insurance to protect your property. Typically, the cost of insurance will be included in your monthly mortgage escrow payment. The more insurance costs, the more you pay each month, impacting affordability.

How much you pay for coverage depends on many factors, including the insurer you choose, where you live, your credit, and the type and amount of coverage you select. Be sure to shop around with multiple insurers to find the best deal available.

FAQ

If you’re considering using a VA loan to buy a home, make sure you understand these aspects of VA mortgages.

Do lenders count military income?

Yes, income from active military employment or from military benefits can be considered when you apply for a VA loan. Your lender can also count some benefits and additional income, such as military quarters allowances.

The key factors for income to count are that the income is verifiable, stable, and likely to continue.

What are the current VA loan rates?

Like rates for any type of mortgage, VA loan interest rates change depending on many market conditions. You can view the latest VA loan rates available from Rocket Mortgage on our VA loan rates page.

Do I have to pay mortgage insurance with a VA loan?

No, VA loans do not require private mortgage insurance or a mortgage insurance premium. However, you will have to pay a one-time funding fee, with the amount varying based on your down payment and how many times you’ve used your VA loan benefit.

What’s an amortization schedule on a VA loan?

Amortization schedules show how your payment is applied to principal and interest over the life of the loan. Most VA loans amortize over the course of 15 or 30 years.

The bottom line on VA loan affordability

How much home you can afford with a VA loan will depend on many variables, including your income, mortgage interest rates, your credit score, your down payment amount, and taxes in your area. Before applying for a loan, think carefully about your budget and make sure you’re in a stable financial position so you can handle the responsibility of homeownership.

If you’re ready to take your first step on your homebuying journey, you can get pre-approved for a VA loan today with Rocket Mortgage.