The price of a house is perhaps one of the most crucial factors in the purchase process, though it can be all too easy to neglect its weight once the home search begins. $15,000 of cushion can become a $50,000 compromise in a matter of minutes.
By determining absolute price points before you even step foot inside the first house, you can confine your interest to houses in an affordable range, making it that much harder to impulse buy or overspend. Though seemingly simple, settling on that perfect price is easier said than done.
So how much house can you really afford with your VA home loan? Here's how to find out.
Do Not Rely On...
...a bank, lender or real estate agent to set the amount that you should spend on a home. No matter how many calculations they run on how income and assets stack up against debt and liability, it is impossible for them to fully comprehend each unique financial situation. “Preapproval gives you a starting point, letting you know how much a lender is willing to lend, but you need to also take a hard look at the monthly payment that comes with that mortgage amount,” says Samantha Reeves, real estate and homebuying expert. “Just because you can qualify for a loan doesn’t necessarily mean the monthly payment will work well with your budget. Consider the monthly payment alongside your other obligations and find a payment zone that fits comfortably within your overall budget.”
...emotion as a basis for your logic. For buyers who purchase on impulse or simply because they "fell in love" with the house – that feeling is often fleeting. Purchasing based on actual calculations won't leave you second-guessing yourself. Rather, you'll feel confident that you made a sound decision, which is essential because it'll be one you'll probably live with for a long time....how much you can afford in minimum monthly payments, as long as nothing goes wrong. First, only making minimum payments, on mortgages, cars, credit cards--anything, is always less than ideal. Paying even a little extra more than the minimum amount each month decreases the balance faster, which exponentially decreases the amount you'll pay in interest on the loan. This equates to savings upwards of thousands of dollars. Second, leaving little to no allowance for unexpected home maintenance can be a costly mistake.
...how much you can easily afford. Aside from the calculations of banks, lenders or real estate agents, make a few calculations of your own. “Determining a monthly mortgage payment that fits comfortably into your current budget without considering other annual costs of homeownership can get sticky. Run some numbers and figure out an amount you want to save for annual home repairs and emergencies as well. If you’ve never owned a home before, these expenses may not be on your radar,” advises Reeves. Consider the age of the home, any upcoming necessary repairs and typical maintenance. “If you are purchasing a home that will need a new roof in the next 5 years, planning for and spreading out that cost over the course of several months will have a much smaller impact on your finances than having to come up with thousands of dollars with no home emergency fund.
...how much will affect your financial stability in the future. It's about more than just what you can afford today. You should also account for future plans, like a wedding or college tuition, to assess how those financial commitments may affect your ability to pay your mortgage. These events don't necessarily mandate a less expensive home purchase; they can also be offset by a well-established emergency fund. The key is to be prepared.
If you've been through the purchase process, how did you best determine how much home you could afford? Are there any other tips to share? Let us know in the comment section below! Use our VA Calculator to determine how much house you can afford.
Formerly a content contributor at Veterans United Network, Kimberly Duncan (NMLS #1227482) is a Senior Transaction Coordinator at Veterans United Home Loans analyzing and processing VA home loan applications.
Kimberly's articles focus primarily on personal finance tips and advice for current and future homeowners.