Like most other government-sponsored mortgage backers, the Department of Veterans Affairs looks at your income to decide how large a mortgage loan you can afford. Generally, it requires that your total monthly debt add up to no more than 41 percent of your monthly income. If you know your income and your monthly payments other than your mortgage, you can use this to work backward and find your maximum allowed mortgage payment. From that amount, you can determine how much you can borrow.
Add up all of your income sources to find your monthly gross income. Your job, any pension or benefit income that you receive and any income from investments can all go into this amount. When you total up your income, add up the before-tax amounts. For instance, if you make $37,000 per year at your job, your spouse makes $42,000 at hers and you have another $2,000 per year in interest and dividend income, your annual income would be $81,000, leading to a monthly income of $6,750.
Multiply your monthly income by 0.41, to find your maximum monthly debt payment allowed by the VA loan program. If your income is $6,750, your maximum monthly debt could be $2,767.50. While 41 percent is the VA's rule as of September 2013, it could vary, so checking with a VA lender to find the current debt-to-income ratio guideline is a good idea.
Subtract your car loan payments, your minimum monthly credit card payments, student loan payments and any other recurring debt payment from your maximum monthly debt amount to find your maximum mortgage payment. For instance, if your maximum monthly debt is $2,767.50 and you have a $375 car payment, $157 in credit card payments and a $203 student loan payment, your maximum mortgage payment would be $2,032.50. The VA's qualification process includes your insurance, property taxes and association dues in your payment.
Subtract your monthly property tax and insurance payment from the maximum monthly payment. If you have a maximum payment of $2,032.50 and anticipate paying $2,400 in property taxes and $1,506 in insurance, you'd subtract $325.50 from the payment to find a $1,707 maximum monthly principal and interest payment. Real estate agents and insurance brokers can help you estimate what your tax and insurance payments will be.
Get a market interest rate from the Internet or from a mortgage broker or lender that works with the VA loan program.
Open a spreadsheet on your computer.
Enter the following command into a blank cell in the spreadsheet, without any quotation marks, to find your maximum monthly payment: "=PV(5.25%/12,30*12,-1707)" and press the "Enter" key. Replace the "5.25" with your actual interest rate, replace the "30" with your desired loan length in years and replace the "1707" with the actual maximum loan payment that you calculated. The number that appears is your maximum loan amount.
The above format will work with Microsoft Excel 2013 and with the version of Google Spreadsheet available as of September 2013. For use with Apache OpenOffice, replace the commas with semicolons.
Compare your maximum loan to the VA's loan limit for your county. If your maximum loan amount is more than the VA's limit, you can still use a VA loan, but you may have to make a down payment.
If you don't qualify for the loan you want based on a debt-to-income basis, you may also be able to use the VA's residual income method to qualify. Using this method, the VA subtracts your state, federal and payroll taxes, your monthly debts, your childcare expenses, a maintenance and utility allowance and a residual amount that it determines from your income. The amount left over is your maximum loan payment. This could lead to a higher loan payment than you'd get using the debt-to-income method.
- If you don't qualify for the loan you want based on a debt-to-income basis, you may also be able to use the VA's residual income method to qualify. Using this method, the VA subtracts your state, federal and payroll taxes, your monthly debts, your childcare expenses, a maintenance and utility allowance and a residual amount that it determines from your income. The amount left over is your maximum loan payment. This could lead to a higher loan payment than you'd get using the debt-to-income method.
Steve Lander has been a writer since 1996, with experience in the fields of financial services, real estate and technology. His work has appeared in trade publications such as the "Minnesota Real Estate Journal" and "Minnesota Multi-Housing Association Advocate." Lander holds a Bachelor of Arts in political science from Columbia University.