Calculating Your VA Loan Amount

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As one of the fortunate few that have earned the coveted VA home loan benefit, at some point there will come a time when you need to figure out the maximum VA loan amount you qualify for. While the maximum VA loan amount actually addresses two separate areas, the primary method to determine your maximum VA loan starts with your entitlement. 

The VA Loan Guaranty

 The first thing to understand regarding VA loan limits is that the VA doesn’t have a maximum loan amount, only a maximum guaranty amount. However, lenders typically require that the VA guaranty, plus any down payment provided by a Veteran, total 25 percent of the loan amount. The maximum VA guaranty for a loan is up to an amount equal to 25 percent of the specific county loan limit. As a result, an amount equal to four times VA’s maximum guaranty amount is customarily referred to as a “loan limit.” VA’s maximum guaranty amounts are established annually, and vary, depending on the size of the loan and the location of the property. 

Max VA Loan Amount Using Your Debt Ratio

Okay, now that you understand how much the VA will guaranty, let’s next take a look at how much you can borrow based upon your debt to income ratio. Your debt ratio is calculated by dividing your total housing payment and monthly obligations by your gross household income. Though there are certain county limits, the lender wants to make sure you can afford what you’re borrowing.

The standard VA debt ratio is 41. That means 41 percent of your gross monthly income can be allowed for housing and credit obligations. For example, say you make $5,000 per month and have no other debt. 41 percent of $5,000 is $2,050. $2,050 is the maximum debt load a VA loan will allow you to carry. What’s included in your debt load?

The first consideration is your housing payment. This payment includes your principal and interest payment, your monthly property tax and insurance payment and any homeowner’s association or monthly condo fees.

Say you have a loan amount of $300,000 and your payment is based upon a 30 year fixed rate of 4.00 percent; your principal and interest payment is $1,432. If your annual property tax bill is $3,000 and your annual insurance premium is $2,000, then your housing payment looks like:

Principal and Interest: $1,432

Monthly Taxes: $250

Monthly Insurance: $167

Total Housing Payment: $1,849

If you divide $1,849 by $5,000 per month income, you get 0.37, or 37. As long as your debt ratio is below 41, you can qualify.

Now let’s add a $500 per month car payment and a $300 per month student loan payment. Your monthly debt looks like:

Principal and Interest: $1,432

Monthly Taxes: $250

Monthly Insurance: $167

Total Housing Payment: $1,849

Car Payment: $500

Student Loan: $300

Total Monthly Debt: $2,649 

If you divide $2,649 by $5,000 per month income, the answer is .53, or 53, well above the 41 maximum allowed. In this example, you maximum VA loan limit would be reduced in order to accommodate the 41 VA debt ratio guideline.

Using the very same numbers, the maximum VA loan with $5,000 monthly income and $800 in consumer debt, the approximate VA loan maximum is $188,500.

When considering a maximum VA loan amount, both the VA guaranty and income must be addressed independently. For instance, if a borrower’s debt ratio were a paltry 10, the maximum VA loan with no money down, is dependent on the VA county loan limits.