“I’m planning to use a VA loan to buy a house in California. How much can I afford to borrow when using this program?”
This is a very common question among military members and veterans buying a home in California with a VA loan. So we’ve addressed it thoroughly below.
Short answer: How much you’re able to borrow with a VA loan will largely depend on your income. Ideally, your debt-to-income ratio should be no higher than 41%. But there are exceptions to this general rule. VA loan limits will also influence how much of a house you can afford to buy in California.
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How Much Can I Afford With a California VA Loan?
To determine how much of a VA loan you’re able to take on, your mortgage lender will review your debt-to-income ratio (DTI). As you might have guessed, this is a comparison between the amount of money you earn each month, and the amount you spend on your recurring debts (mortgage payments, credit cards, car loan, etc.).
As a general rule, the Department of Veterans Affairs prefers borrowers to have a debt-to-income ratio no higher than 41%. In other words, the borrower’s debts should use up no more than 41% of his or her income. But there are exceptions to this standard, particularly for borrowers with plenty of “residual income.”
In this context, your residual income is what you have left over each month after paying your recurring debts, such as your mortgage payment, car payment, and credit card bills. (Residual income requirements vary by location. Contact us if you would like to learn more about it.)
Borrowers with residual incomes that are well above the minimum VA requirement tend to have some extra leeway when it comes to their debt ratios. So there are several overlapping factors at work, when determining how much you can afford to borrow with a California VA loan.
But we’re getting into the weeds here. If you’d like to find out how much house you could buy in California when using a VA mortgage loan, please contact us.
VA Loan Limits Vary by County
The Department of Veterans Affairs does not put a limit on the amount you can borrow when using a VA loan. But they do limit the amount they are able to guarantee, and this affects how much you can afford when buying a home in California.
These VA loan limits, as they are known, vary by county due to differences in home prices. In California, they range from $424,100 in most counties, up to $636,150 in the more expensive real estate markets like Orange County and San Francisco.
But these are just the maximum guarantee amounts for VA loans. How much you are able to borrow will depend more on your income level, as explained in the previous section.
Getting Pre-Approved Before Entering the Market
If you’ve decided to use a VA loan to buy a house in California, it would be wise to get pre-approved before shopping for a home. It’s a good way to determine how much house you can afford to purchase with a VA mortgage.
The pre-approval process is basically a form of financial pre-screening. Your mortgage lender will analyze your current financial situation, including your income, assets and debts. They’ll also look at your credit reports and scores, to see how you’ve borrowed and repaid money in the past.
This process yields two results, both important to you as a borrower:
- It helps you find out if you can qualify for a VA loan.
- It determines how much of a loan you can take on.
It makes sense to get pre-approved before you start house hunting. The pre-approval process gives you a better idea as to how much house you can afford to buy in California, when using the VA loan program. It allows you to narrow your search to the types of homes you can actually afford to buy. This results in a more efficient house-hunting process.