Marcus Marion, CMA™ Of all the questions people ask about the VA home loan program, one question tends to rise to the top: How much can I borrow when using a VA loan to buy a house?
There is no single standardized answer to this question, because every borrower is different. Individual home buyers qualify for different loan amounts based on their income (primarily) along with their recurring debts.
To determine the amount you can borrow, mortgage lenders look at everything from your credit score to your employment history, and beyond.
Here’s the short version: When you apply for a VA loan, the lender will use the debt-to-income ratio and other factors to determine how much you can borrow. The goal is to ensure that you can afford the monthly payments on top of your other recurring debts.
No Specific Income Requirement for VA Loans
When we create our VA loan guides, we often refer to the official guidelines published by the Department of Veterans Affairs. Most of the specific loan requirements can be found in VA Pamphlet 26-7, also known as the Lender’s Handbook.
But you might be surprised to learn that the official VA loan handbook doesn’t specify any income limits for borrowers who use this program.
As it states on the VA.gov website:
“The VA-backed home loan limit refers to the amount we’ll guarantee (the maximum amount we’ll pay to your lender if you default on your loan). We don’t limit how much you can borrow to finance a home.”
While the Department of Veterans Affairs does not limit how much you can borrow with a VA loan, they do provide specific guidelines to mortgage lenders. These guidelines help lenders decide how much a person can borrow based on their current income and debt situation.
How Lenders Decide How Much You Can Borrow
Mortgage lenders take a formulaic approach to determine how much a person can borrow when using a VA-guaranteed mortgage loan. Two of the most important factors that go into this “equation” are the debt-to-income (DTI) ratio and residual income.
As you can probably guess, the DTI ratio shows how much of your monthly income is being used to cover your recurring debts. In this context, we’re talking about all of your combined debts, such as a car payment, credit card bills, and the estimated mortgage payment.
The VA sets a “soft” limit at 41% for the debt-to-income ratio. They advise mortgage lenders to cap the DTI ratio at 41% for most borrowers. But lenders can also make exceptions for borrowers who are otherwise well-qualified for a loan. Some people can qualify for a VA loan with a DTI ratio as high as 50%.
The VA also requires borrowers to have some residual income left over each month, after paying their monthly mortgage payment and other debts. This financial protection measure helps prevent homeowners from experiencing financial hardship down the road.
The amount of residual income that’s required can vary depending on location and family size. You can refer to our residual income breakdown to learn more about the subject.
Pre-Approval Can Identify Your Maximum Loan Amount
The best way to determine how much you can borrow with a VA loan is to get pre-approved by a mortgage lender that offers these loans. Pre-approval offers other benefits as well, as you will soon see.
You can think of mortgage pre-approval as a kind of financial screening or vetting process. During this process, your lender will review all aspects of your financial situation, including your credit score, income level, assets, and all of your recurring debts.
Based on this analysis, they will determine the maximum amount you can borrow when using a VA-guaranteed mortgage loan. The lender will also analyze those two important factors mentioned earlier: residual income and the debt-to-income ratio.
It’s called “pre” approval, because it happens before you find a real estate agent or start shopping for a home. This is the best way to approach the home buying process, because it allows you to determine a specific price range based on your financing capacity.
Without getting pre-approved, you could end up wasting precious time looking at homes that exceed the amount you’re able to borrow.
Having a pre-approval letter from a mortgage lender could also make sellers more inclined to accept your offer, since you’ve been thoroughly screened and vetted.
Establishing a Housing Budget for Yourself
A mortgage lender can tell you how much you are able to borrow with a VA loan. But they cannot tell you whether or not you’re comfortable taking on that amount of debt. This is something you’ll want to determine on your own, through a personal budgeting process.
The best-case scenario, from a borrower’s perspective, is to have a maximum housing payment in mind before you even start talking to mortgage lenders. This number represents the most you are comfortable spending each month on your housing costs, while considering your other debts and your financial goals.
You can learn more about budgeting in our VA loan preparation guide. We highly encourage you to read that guide if you’re planning to use a VA loan to buy a home in the near future. It will help you enter that process armed with the right information, knowledge and mindset.
The bottom line: The best way to determine how much you can borrow is by getting a pre-approved for a VA loan. Mortgage calculators and online estimators don’t have enough information to give you a precise borrowing limit. Only a mortgage lender can do that, and it will largely be based on your debt-to-income ratio.
