Key highlights from this article:
- Mortgage lenders determine the most you can borrow on a VA loan.
- The government used to set official loan limits, but that ended in 2020.
- Your income and debt are largely what determine your borrowing limit.
- Many lenders set a “debt-to-income” limit at around 45%, for VA borrowers.
- We encourage borrowers to establish their own monthly housing budgets.
We receive quite a few questions about the VA loan program. Many of them have to do with maximum borrowing capacity. Today, we’ll address one of those frequently asked questions: What is the most I can borrow with a VA loan, when buying a home?
What’s the Most I Can Borrow with a VA Loan?
The first thing you need to know is that it’s up to the mortgage lender to determine the most you can borrow with a VA loan. It’s not up to the government.
Prior to 2020, VA loans did have official limits associated with them. These were imposed by the U.S. Department of Veterans Affairs, and were based on the conforming limits established by federal housing officials. Those county-specific limits represented the maximum amount you could borrow without making a down payment.
But those caps essentially disappeared in 2020, with the passage of the Blue Water Navy Vietnam Veterans Act of 2019. Among other things, this piece of legislation eliminated the official loan limits that were associated with the VA mortgage program.
According to the Department of Veterans Affairs website:
“VA-guaranteed home loans will no longer be limited to the Federal Housing Finance Agency (Federally-established) Confirming Loan Limits. Veterans will now be able to obtain a no-down payment home loan in all areas, regardless of loan amount.”
This change took effect on January 1, 2020. So, for 2020 and going forward, it’s completely up to the mortgage lender to determine the most you can borrow with a VA loan. And they typically do that based on something known as the debt-to-income ratio, or DTI. So let’s talk about that next.
Debt-to-Income Ratios for VA Loans
When you apply for a mortgage loan — whether it’s a VA, conventional or FHA loan — the mortgage lender will review your debt-to-income ratio (DTI). As its name suggests, this ratio shows the relationship between your gross monthly income and your recurring monthly debts.
Example: A person who uses 30% of her gross monthly income to cover all recurring debts has a total debt-to-income ratio of 30%.
This ratio helps mortgage lenders determine how much money a person can borrow on a mortgage loan. It also helps them determine the level of risk associated with a particular loan. Generally speaking, a higher debt-to-income ratio represents a bigger risk for the lender.
To determine the most you can borrow for a VA loan, the mortgage lender may use a specific DTI cutoff or threshold. They can also handle it on a case-by-case basis, allowing more debt for otherwise well-qualified borrowers.
These days, in 2020, many lenders set the DTI limit at around 45% for VA loan applicants. But that number is not set in stone. It can vary from one mortgage company or bank to the next.
Some lenders will allow a higher debt ratio for VA loans, especially if they feel that the borrower is well-qualified and creditworthy. For instance, a person with an excellent credit history might still qualify for financing even with a higher-than-average DTI ratio. Other lenders might set the bar lower, in terms of debt ratio. It varies.
There are other factors involved in determining the most you can borrow for a VA loan. But the debt-to-income ratio is usually at the top of the list. It’s one of the most important pieces of the “puzzle,” for mortgage qualification purposes.
Your Ability to Repay Is Also Important
You also need sufficient income to cover your monthly mortgage payments, along with all of your other recurring debts. We touched on this above, when talking about the DTI ratio. The maximum or most you can borrow for a VA loan partly depends on the amount of money you earn each month.
You might have heard of the four C’s of mortgage qualification. They stand for capacity, capital, collateral and credit:
- Capacity refers to your ability to pay back the loan over time. When you apply for a VA-backed mortgage loan, the lender will review your income, savings, employment situation, and monthly debts. They want to make sure you have the “capacity” or ability to repay the loan. This will determine the most you can borrow with a VA mortgage.
- Capital, the next of the four C’s, refers to the money and resources you have readily available. This can include checking and savings accounts, investments, other assets or properties that have a quantifiable value.
- Collateral refers to the property itself. When you buy a home, you use the property as collateral for the loan. So the mortgage lender will have the property appraised to determine its current market value.
- Credit is the last of the four C’s. Mortgage lenders review your credit score to see how you have borrowed and repaid money in the past. Generally speaking, a higher score makes it easier to qualify for a VA loan.
Of all the four C’s, capacity is the one most relevant to this article. Your capacity to meet your monthly payments will partly determine the maximum amount you can borrow for a VA loan.
At the end of the day, the only way to figure out the most you can borrow is by talking to a mortgage lender.
There are many calculators available online that claim to tell you how much you can afford to buy, how much of a loan you can qualify for, etc. But these calculators do not take your full financial situation into account. So they’re a poor substitute for actually speaking to a lender. That’s the next step in determining how much of you a VA loan you can qualify for.
Disclaimer: This article includes general statements regarding mortgage qualification and approval. The general guidelines mentioned above are not written in stone, and they might not apply to your particular situation. Ultimately, the only one who can tell you how much you’re able to borrow is a lender.