Does Budget Matter When Getting a VA Home Loan?
Forecasting your expected income and expenditures is important when a new home is in your future. Those applying for a VA home loan should pay special attention to their budgets because it is up to them to figure out if they are ready to spend more on housing.
Who Makes the Budget?
Lenders don’t actually have access to other items outside of a credit report. Yes, they do receive your Certificate of Eligibility, (COE) but that is merely a qualification for a VA home loan. Therefore, it’s your job to look at your budget to ensure you will be able to pay your future home payment.
Things to look for when budgeting are:
- Income. Subtract the income taxes from your salary to produce the “take-home” pay per month.
- Bills. Add up the bills for your cable, cell phone, heating and air conditioning, and credit cards. Don’t forget to consider the irregular bills like licensing and insurance.
- Other Expenses. Looking at how much you spend on food, gas and activities throughout the month is also important. These costs consistently take up a chunk of our budgets.
The Lender’s Job
Although the task budgeting is up to you, lenders do have a very crucial task as well. Lenders will observe your payment shock before you purchase a new home. A payment shock is basically what happens when a homeowner’s monthly payment increases. Lenders do this to make sure buyers are prepared to make housing a bigger part of their budget.
Calculating Payment Shock
Different lenders are going to have different reasons and different criteria for calculating payment shock. In simple terms, the value of payment shock is found by dividing your new monthly payment by your old monthly payment. Let’s say your current rent is at $1,000, and you’re going to have a $1,500 mortgage payment. This comes out to be 1.5. Multiplying the answer by 100 would then produce 150%.
1,500 / 1,000 = 1.5 x 100 = 150%
An underwriter, or the person who approves your VA loan application, will also take a peek at this potential payment shock. Typically speaking, payment shock is going to help you decide whether you are ready for a higher mortgage. It’s deciding if your budget will suffice when your mortgage becomes twice as expensive as before.
Debt ratio as well as your credit score are important factors when reviewing your payment shock. Debt ratio is the ratio of total long-term and short-term debt to total assets. Having a high debt ratio, a low credit score and a high payment shock percentage may keep you from approval for a VA home loan.
Try keeping your payment shock below 125%. This low percentage will prove you will be able to efficiently pay your new mortgage payments.
Although budgeting seems to be the borrowers’ job, the home loan specialists at VA Loan Spot are here to help in any possible way. The lenders at VA Loan Spot will work with you to find the VA home loan you deserve. Call VA Loan Spot today.
Bobby Atkisson is a seasoned mortgage professional who provides high quality financial services to military members and veterans. With over 14 years experience in the lending and financial industry, his mission is to provide high quality mortgage programs with the most competitive interest rates. For expert advice and guidance on VA Home Loans and Refinance, contact Bobby today at 800-537-2050.