With a VA Loan in Orange County, what does it take to qualify for a home price of $679,650? The reason I am using $679,650 as the price is that that is the loan limit for 100% VA financing in Orange County. You can still buy a detached home in Orange County for $679,650, but this price range could also put you in a nice attached home or condo as well. What do the numbers look like for an Orange County Veteran looking to take advantage of the VA loan program? What will the payment be? How much money will be needed to close the purchase? These are all questions that you, as a Veteran home buyer, need to know BEFORE you go out and make an offer on a home. You need to know if you qualify for a VA loan.
Know your Numbers Before House Hunting
It is very important to understand your own budget. Be realistic about how much of a mortgage payment you can afford. From my own experience working with new home buyers, most are surprised at how much the mortgage payment will be for the homes they are interested in. The mortgage payment is made up of several components. Everyone knows or should know, about the Principal and Interest. But you also need to include the Property Taxes and Home Owners Insurance. And if you are looking at condos or homes in a Planned Unit Development (PUD), you will also need to include the Home Owners Association Dues into the mortgage payment. The Principal, Interest, Taxes and Insurance are commonly referred to as “PITI”.
For a $450,000 purchase price with No Down Payment, if we assume a middle of the road interest rate of 4.5% (4.776% APR), the P&I portion of the payment will be $2,329. The Property taxes will be approximately $465 (depending on the properties tax rate). The Home Owners Insurance will be approximately $94 (depending on the property and your insurance companies quote to you). Your total PITI will be $2,892 based on these assumptions. If we add $100,000 to the purchase price, the PITI jumps to $3,534, a $654 payment increase, At $650,000 the PITI jumps to $4,177. And at $679,650 the PITI will be approximately $4,367.
If you’re looking to buy a home for $679,650 then you need to make sure you can afford a $4,367 payment. Does that payment fit in your budget? Will you still be able to save for your retirement, kids college funds, and have something left over for going out now and then? Most people that feel they can afford the payment will also qualify for a VA loan. VA is fairly flexible the Debt to Income percentages.
Do You Qualify for a $4,367 Payment? Let’s Calculate your Debt to Income Ratio
The Debt to Income ratio, or DTI, is a calculation used by lenders to qualify potential home buyers for their home loan. It is calculated by dividing your mortgage payment, or PITI, plus any other monthly debt payments, by your gross monthly income. The guideline Debt to Income ratio for a VA loan is 41%. $4,367 divided by 41% equals $10,651. So to qualify for a $4,367 payment, using a fairly conservative 41%, the VA borrower would need a monthly income of $10,651, or $128,000 per year. However, 41% is just a guideline. It is not uncommon, especially for a Veteran with good credit, to allow the DTI to be as high as 55%. At 55%, the monthly gross income before taxes only needs to be $7,940, or $95,280 per month. In reality, most people will have a car payment and possibly students loan payments or other monthly debt payments that would also need to be included in the calculation. For an accurate assessment, you should get PreQualified for your VA loan before you begin making offers, but these numbers should give you a good idea of what to expect.
How Much of the Payment is Principal
It is important to understand how much of the Principal & Interest payment is Principal. Because when you pay Principal, you are just paying the lender back for the money that has been lent to you. In our $679,650 purchase example, $914 of the $2,892 P&I is Principal. This is like saving money. It is not an expense as much as it is helping to build your wealth since your debt is decreasing. If you are comparing your rent payment to a mortgage payment, you should really be comparing your rent to the mortgage payment less the principal. The $4,367 payment less $914 is $3,452. And even if that payment is higher than your rent, you should also consider any tax advantages you will have as a result of owning. Your tax preparer should be able to let you know what savings you will have by owning a home.
The VA Loan Does have Closing Costs
The best thing about the VA loan is that there is no down payment. But that doesn’t mean there are no closing costs. When you buy a home you will still have an appraisal. There will still be an escrow and title company involved just like any other home purchase. You’ll still have recording fees, notary fees, lender fees, etc. And you will also have “Prepaid Expenses”. Prepaid expenses are things like prepaid interest, property taxes, and homeowners insurance. Closing costs can be estimated to be approximately 1% of the purchase price, maybe a little less. Prepaid expenses will vary depending on the timing of the closing. The timing of the closing affects Prepaid interest and the property tax impound account. In most cases, it would be safe to assume the Prepaid Expenses will also be approximately 1% of the purchase price. So for a $679,650 purchase price, plan on needing approximately $13,593 to close.
Can Closing Costs be Financed? What is a VA No No?
Closing costs cannot be financed. However, there are ways to get them paid. You can negotiate to have the seller pay the closing costs, or you can ask the lender to provide loan scenario options that include a lender credit for closing costs. By adjusting the interest rate higher, the lender can offer a credit to cover some or all of the closing costs. This is something you should review BEFORE making an offer. Veterans with a service-connected disability rating will receive a waiver of the VA Funding Fee but still will have the normal closing costs and prepaid expenses.
Below is a link to an interactive Rent vs Own calculator. It will allow you to adjust the purchase price, down payment, and other factors so that you can get an idea of whether buying a home makes financing sense for you.
Click Here for the Rent vs Own Calculator
Talk to an Orange County VA Loan Officer
It is always good to do as much research as you can when it comes to buying a home. But to get an accurate assessment of your numbers, talking with an Orange County VA Loan Officer is an important step. You will want to get PreApproved for your VA loan before you begin house hunting. After the initial phone consultation, the VA loan officer will be able to prepare custom loan scenarios that will give you a thorough breakdown of the numbers. If the loan officer is not able to answer your VA loan questions or provide scenarios that clearly give you a breakdown of your numbers, then find someone who can.
Authored by Tim Storm, an Orange County, CA Loan Officer specializing in VA Loans. MLO 223456. – Please contact my office at Fairway Independent Mortgage Corporation NMLS #2289. My direct line is 714-478-3049. I will prepare custom VA loan scenarios that will be matched up to your financial goals, both long and short-term. I also prepare a Video Explanation of your scenarios so that you are able to fully understand the numbers BEFORE you have started the loan process.