There are plenty of challenges to being active duty, but one of the benefits of it is knowing exactly how much housing you can afford. First of all, you always have the opportunity to live on base when it can be provided as an option to you. Secondly, you can use your BAH to pay for non-base housing if you choose. However, this can be a difficult adjustment for veterans who are working in the civilian world now, and might not know exactly how to calculate what they can afford as a home. Especially if your career is in flux, it is important to think about all the factors that can influence what you can buy as a home.
Remember those guys you served with who lived in the scrappiest studio apartments or 1 bedroom so they could live off the extra BAH? Ah, those days are a distant memory when you’re a veteran without that extra cash flow to cover your living expenses?
Finding your dream home is certainly exciting, but you also need to balance this with whether or not you want to make the ongoing payments towards it and cover the potential maintenance cost of a certain property. If you’re wondering “what home can I afford?”, we can help! The more you know about what you can afford as a home, the easier it will be for you to shop for a home and to find something in your budget that meets your other requirements.
How Much House Can I Afford?
The housing market has undergone significant changes as a result of the pandemic. Many homes are in high demand and realtors are struggling to keep up. This means it can be very difficult to find a home that you can afford and make an offer on it that is likely to be accepted. One of the most important things you can do before you start shopping for a home is getting a really good handle on what you can and can’t afford in a home. This will make it easier for you and any realtors that you work with to pinpoint the exact budget you’re working within.
Beyond the initial price of the home, you also want to think about whether or not the home will need any renovations or ongoing care. For example, perhaps your dream is a 30-acre farm in the country, but do you have the time and ability to care for all of that land and mow the grass? If you want to purchase your dream Victorian home in need of a total upgrade, do you have the additional money set aside to be able to make those renovations (or to live elsewhere so you don’t drive your family insane with contractors and construction projects?)
House Affordability Calculator
To start with, you must find the answer to “what home price can I afford?” There are a few factors that go into this and your individual experience will determine the results.
A great tool to look into a House Affordability Calculator. The last thing you want is your realtor to show you that dream property that your family falls in love with only to realize that it’s truly out of your reach. After all, we can’t all be the 30-year old couple on HGTV buying their second home with a budget of $2 million (is it just me, or do they always seem to have questionable careers with these huge budgets?)
You can check out NerdWallet’s House Affordability Calculator to get a starting point for your budget. There’s also the benefit of getting pre-qualified by a mortgage lender before you even start home shopping so you can avoid that awkward conversation of “Oops, we loved this property but we can’t get a lender to back us for the cost.” Once you’re pre-approved, you’ll have a letter from your chosen lender stating how much they’ll be happy to mortgage for you, which might narrow down your shopping options or keep you from falling in love with things outside of the scope of reality.
Here are some things to think about when you were determining how much house you can afford:
- How has your pay structure changed, if at all?
- Do you have any savings you can use to pay towards a big down payment?
- Are there other obligations like child support, spousal support, or medical bills that you need to take care of?
- What other goals do you have for your life post-military? For example, do you want to travel for a year in an RV and if so, what is the best home situation you can find, like a property you might be able to rent out when you’re gone?
- Does your spouse work, too, and do they intend to keep working as well?
How Much Mortgage Can I Afford?
You need to think about how much you’re willing to pay for a mortgage and how that will impact you over time, but you also must know how much mortgage you’ll be able to get. It’s possible that these are two different numbers.
In general, experts suggest that you should spend no more than 30% of your income on your home.
This should leave you, in most cases, with plenty of finances to cover your other needs like groceries, clothing, and medical expenses. This is a baseline suggestion, however, it can be very helpful for those who have recently left the service to get an idea of what they can realistically afford.
Of course, going with a 15-year mortgage vs. a 30-year will also have an impact. When we faced this decision process for our first VA loan, we wanted something affordable that we could also pay off in 15 years so that we’d have options for what to do with that home. However, for a bigger home, it might make more sense to spread that payment out over time. Ultimately, you need to be realistic about your earning potential civilian side and how many working years you have left. Don’t take on a massive 30-year mortgage if you’re 60 and mostly planning to live off your military pension. That puts unnecessary financial stress on you.
No one wants that big payment to hit every single month unless you’ve budgeted for it. So sit down and work item by item through your budget list to see what you can pay for and how your other expenses will influence this amount. You might adjust your target mortgage amount based on the results.
How Much Will the VA Loan Me for a House?
What are the most important things to remember is that there is no cap on your VA loan if you are putting money down. However, most veterans are leveraging the VA loan because of the possibility to put no money down. This means you could be affected by a mortgage cap. The conforming loan limits for your county and your total entitlement will also impact how much the VA will loan you for a house.
The confirming loan limit for a single-family home now varies at a top amount of $548,250 to $822,375. Depending on your location, this will be the maximum amount you can take out.
The best way to know for sure what the VA will loan you is to go through the pre-approval process with a qualified VA lender. That way you know exactly what to expect and can use this information for the home shopping process.
There are many different VA lenders out there. You can check out an official list here.
Be aware of anyone that is not listed in that group trying to offer you services related to buying a home.
In recent years, there have been more and more people targeting servicemembers and veterans in this process. Some provide a valuable service, but others are trying to make a quick buck off of this big market. Ask for more details about what they really provide as far as helping so you can decide if these are services you really need or not.
Make sure you know some of the specific rules and processes around VA loans. They are only available for certain houses, for example. VA lenders also might have really specific rules around what they want to be done in your home before you buy it. Two days before we closed, our VA lender demanded I treat the back deck for carpenter bees even though it was November and no active colony was present. It was just their policy, so we had to wing it and squeeze in this last-minute expense. Make sure you work with a lender who has good ratings and provides a good experience. Buying a home is stressful enough, the last thing you need is a VA lender who makes it worse.
Buying a home post-service is an exciting prospect, but you’ve got to adjust your spending now that you’re not getting that sweet BAH money. Be realistic when questioning “what home can I afford” and match that with what you want to spend, too. It’s not worth being house poor to purchase a big home; you might end up really regretting it or resenting the home rather than enjoying it.
Now that you have a starting point to answer, “What home can I afford?” check out our VA Home Loan series and get the process started.