Many armed forces members say to themselves, I am in the military and want to buy a home in California. What is the most I can afford to borrow?”
This is one of the many questions we get from active duty military service people and veterans who want to use their VA benefits to buy a home.
Listed below are the essentials you need to be familiar with before doing a home search in cities like Mission Viejo, Aliso Viejo, Lake Forest and nearby Orange County cities.
Debt Ratios Requirements:
One method mortgage lenders use to figure out the maximum loan you will qualify for is by calculating your debt-to-income (DTI) ratio. This ratio represents the amount of monthly debts you owe on your credit report to your gross income expressed as a percentage.
For example, if one-third of your gross monthly income goes to pay your credit card, car loan and student loans, then you have a DTI ratio of 33%. If 45% of your gross income is applied to those debts then it is a DTI of 45.
For the most part, the Department of Veterans Affairs put a ceiling of 41% as the maximum allowed debt-to-income ratio on VA loans. So, if you have a 45 DTI, your application will be looked at for other positive factors such as growing income, or a substantial amount of savings or liquid investments. So, yes exceptions do exist.
Related: VA loan limits for California
Residual Income Requirements:
“Residual income” is the remaining income you have every month, after paying all of your bills. If it is more than 20% of the lowest allowed requirement and have high debt ratios, you may have more flexibility from the lender.
But to be sure, a trusted expert in this field would be able to tell you how much loan you can obtain when using your VA loan benefits in California, so give us a call or use our calculator. By calling us, we’ll be able to review your overall financial profile to see if you’re looking in the right price range a VA-guaranteed mortgage loan.
Check the VA loan eligibility requirements
The Pre-Approval Process in California
If you’re thinking of using a VA loan to purchase a home in Orange County, CA, it is a very smart move to get yourself pre-approved before searching for homes so you are sure you’ll get financing.
With a pre-approval the lender will review a variety of documents which includes your income, debts and assets. They’ll also review your credit report to see how you’ve managed your debts throughout the past 10 years and may need explanation letters for any derogatory credit items in the last 4 years.