![]() Your front-end DTI is your housing expenses, like your monthly payment, property taxes and home insurance divided by your income.Īlthough lenders don’t use this ratio to qualify you, it’s still essential in helping you figure out how much house you can afford.Ī general rule of thumb is your front-end DTI shouldn’t exceed 28-30 percent. But, you might not know the difference between the two and how they impact your DTI calculation. You may have heard of the terms front-end and back-end debt-to-income ratios. Difference Between Front-End and Back-End DTI By paying more than 41 percent of your gross income on monthly debt, a slight downward shift in your pay could severely damage your long-term housing budget. If your DTI exceeds 41 percent, you may pay a higher interest rate or pay more fees. However, the VA doesn’t provide the actual financing, so it's up to lenders to use their own ratios to make loans. The VA recommends that lenders cap your DTI at 41 percent. In almost every case, VA-backed lenders won’t use debt such as your cellphone bill, car insurance, health insurance premiums or utility bills to calculate your DTI. Keep in mind most VA lenders only use active consumer debts that show up on your credit report to calculate your total monthly debt. Total monthly debt (rent + car payment + credit card payment + student loan payment) / Gross monthly income = Debt-to-income ratio ($1,200 total debt / $4,500 gross income = 0.26 or 26 percent). Here is a quick example of how lenders calculate your DTI You determine your DTI by dividing your total monthly debt by your total gross income. For example, if your total monthly debt is $720 and your monthly income is $2,000, your DTI would be 36 percent. Your debt-to-income ratio is the relationship between your income and how much you spend each month on debt. Why Your DTI Is Important for Affordability If you have less-than-perfect credit, lenders might consider you a riskier borrower and charge you more for a home loan. The more financially responsible you are, the more likely you are to make your mortgage payments on time. Lenders use your credit score to evaluate your level of financial responsibility. However, with a lower credit score, you’ll pay a higher interest rate and more fees that could increase your monthly mortgage payment. VA-backed mortgages have no minimum credit score requirement. Your debt-to-income ratio (DTI) will help you understand more about your total monthly debt and home affordability, which we’ll cover in more detail later. The bottom line is the more monthly debt Veterans carry, the harder it is for them to pay their bills comfortably. Your total monthly debt payments also play a critical role in home affordability. The more income you earn, the easier it will be to meet your monthly home loan obligation. Lenders will need to verify income by providing copies of your W-2’s, pay stubs, 1099s, disability award letters, proof of self-employment and more. Unless you can pay for a home in cash, you’ll need a stable income to make your monthly mortgage payments. ![]() Your gross income is your total pay before deductions and helps determines how much house you can afford. So, let's take a look at three critical components that factor into the calculation of VA home loan affordability. What Factors Determine How Much Home You Can Afford With a VA LoanĪs a Veteran, you gain access to the most powerful mortgage product available today - the VA home loan, and there is a level of solace in knowing how much home you can afford.īut, qualifying for a VA loan doesn’t guarantee you’ll get a mortgage or buy a house you can comfortably fit in your budget. To help you qualify for a mortgage that meets your personal and financial needs, input your information to determine how much home you can afford using this simple VA loan affordability calculator. ![]() However, powerful tools exist that eliminate the fear of purchasing a home you can’t afford, and doing so will give you a realistic idea of how much VA home loan you can afford. Talking to a VA lender about your home loan affordability is always a smart first step during the homebuying process. For many Veterans, those numbers can be a bit intimidating. When you begin your homebuying journey, you’re going to deal with some pretty large numbers. How to Determine Eligibility for a VA Loan
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