# Financing question regarding VA loan and Teaneck, NJ area. Thanks to all that answered my last question......

Asked by Cb1999nj, Elizabeth, NJ Fri May 8, 2009

Recently visited a 07601 realtor's website to look at some information for 1st time buyers. On the site it stated that if you can afford 1500-2000 a month then you can afford a house from 250000-300000. The realtor referred me to their loan department. They did not seem too familiar with VA loans. Long story short, I was pre-approved for 200000 VA . This info kind of took the wind out of my sail as I had been looking at houses in the range listed above. As I told the mortgage person, what house can I buy in Teaneck with a mortgage in that amount. Not interested in a condo. So basically, I have a credit score of 690 which should go up on 5-24 on my next report. I made about 51k last year. The only bills I have are car insurance, some school loans about 250/mth and my credit cards will be paid in full in 2 months. Does the loan amount sound correct? 200000/30/12=555.55 I can afford at least 1500-1700/mth. Is it possible to get a higher loan or is Teaneck out of my range. TY

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How much you can get approved for and how much you feel you can afford are two VERY DIFFERENT questions.
Yes, you can probably get approved for a home in the \$250,000 range.
However, you say you can afford "at least" 1700. How much more than that can you afford, or is that close to your max?
Do this calculation: On average, use \$550/mo for every \$100,000 you finance. A \$250,000 mortgage then would be \$1,375. Next - what are the taxes on the home? If they are, say, \$6000 a year, add \$500 to your housing payment. Next - homeowner's insurance, which would cost at least \$50 a month if not more. Add that. Now we are up to at least \$1925. If you go to \$300,000 then your monthly payment jumps to at least \$2175. This is getting way out of your comfort zone and changes are your taxes might be higher depending on the community you are looking in.
Ruth Bonapace
mortgage specialist
ruthbonapace@gmail.com
Having some mortgage and banking knowledge and being a retired Navy Veteran I might be able to shed some light on the VA Loan subject. I should clarify it's not a "loan" per say.

VA guaranteed loans are made by private lenders, such as banks, savings & loans, or mortgage companies to eligible veterans for the purchase of a home which must be for their own personal occupancy. The guaranty means the lender is protected against loss if you fail to repay the loan. The guaranty replaces the protection the lender normally receives by requiring a down payment allowing you to obtain favorable financing terms.

http://www.homeloans.va.gov/faqpreln.htm

The best answer comes from Ruth Bonapace who, actually, I do know. However, she's the only person who gave you a direct answer and the knowledge you need to give yourself a pretty accurate estimate. This is what you should expect from a licensed mortgage banker. Notice I used the phrase "licensed mortgage banker" because there still exists unlicensed mortgage brokers and those folks you should absolutely avoid.

Teaneck has higher taxes than many other locations because it is a city. When the population rises above 25,000 it is considered a city and Teaneck exceeds this figure. Cities must have paid services while a small town can have volunteers. For example, a paid fire department where you have 24/7 firemen on duty as opposed to volunteers who come when called. Both work just fine but with a small town's population, you don't need a paid, full time staff. So city taxes are higher. The difference can be as much as \$100 per month in what it costs you and that can make a home unaffordable.

Ruth is right - you must look at the property taxes and you also do not want to max yourself out. Condition is another issue - paint isn't too bad but having to put in a new kitchen is a big ticket item. VA loans are fine. The advantage is that the interest rate and terms are moderately better which, in the long run, amount to a large savings for you. Be careful to figure out things correctly. There was a comment below where someone was speaking of 41% ratios - that's ridiculous. It's better to wait and save more money than to max yourself out. Interest rates are projected to be higher next year and if you have not owned a home for the past 3 years and your income qualifies, you can get a first time home buyer credit up to \$8,000 if you purchase by December 1st, but if this means you can't afford to go out to a movie on a weekend, it isn't a good idea.
1 vote Thank Flag Link Sun May 10, 2009
How much you can get approved for and how much you feel you can afford are two VERY DIFFERENT questions.
Yes, you can probably get approved for a home in the \$250,000 range.
However, you say you can afford "at least" 1700. How much more than that can you afford, or is that close to your max?
Do this calculation: On average, use \$550/mo for every \$100,000 you finance. A \$250,000 mortgage then would be \$1,375. Next - what are the taxes on the home? If they are, say, \$6000 a year, add \$500 to your housing payment. Next - homeowner's insurance, which would cost at least \$50 a month if not more. Add that. Now we are up to at least \$1925. If you go to \$300,000 then your monthly payment jumps to at least \$2175. This is getting way out of your comfort zone and changes are your taxes might be higher depending on the community you are looking in.
Ruth Bonapace
mortgage specialist
ruthbonapace@gmail.com
1 vote Thank Flag Link Sun May 10, 2009
The previous answer regarding debt ratios is a great explanation of debt ratio calculation. However, you may be able to qualify for a higher loan amount, provided you receive an approval from an automated loan approval, to go above the standard 41% debt ratio. I have seen Debt Ratios as high as 55% get an approval with a decent residual income. Do you have any dependents? This is used to calculate your residual income.

You can check my VA specific website at http://www.vamortgageassistance.us Other factors: Do you have any savings currently? What is your current rent? Do you have a spouse who works? Can you pay down the student loan debt?

With that said, obtaining 100% with a high debt ratio for a first time buyer is a slippery slope both for you and a lender. If you are unable to save any \$ currently, and your mortgage "payment shock"( your increase from your current rent to a new mortgage) is significant, you could find yourself in financial peril quickly.

Feel free to contact me directly.
1 vote Thank Flag Link Sat May 9, 2009
Well, I'm no expert, but I'm in the process of getting a VA home loan and have researched it extensively. they look at two things to see how much you can afford.

1. Your debt to income ratio. They don't want it over 41%, but it can be if you meet criteria number 2. They look at how much you make before taxes, which in your case is (51,000/12) \$4250. Now multiply that by 0.41 and that equals \$1742. Now that 1742 is for everything (250 for school loans, whatever you pay for insurance, your mortgage, your homeowner insurance, and your property taxes. Subtracting the \$250 for student loans and we'll say \$50/month for car insurance will leave you with 1440 a month for mortgage, homeowner insurance, and property taxes. 200k sounds about right, but I don't know what your property taxes are. Obviously, this assumes you've paid off your credit cards.

2. You can exceed 41% if your residual income is 120% of the guideline. The guideline for your area (NJ) is \$450 for single, \$750 for family of 2, \$909 for family of 3, and \$1025 for family of 4. This is how much you have AFTER taxes and after you pay all your bills (same as above - don't forget child support or child care)... using this formula, you might be eligible for more. I don't know how big your family is, if you're planning on putting any kind of down payment, your property taxes, etc.

you might want to work with someone who is more familiar with VA loans (and pay off those credit cards first - I'm sure they're being included in your debt to income ratio)
1 vote Thank Flag Link Fri May 8, 2009
Only a licensed banker can tell anyone what they can afford and if an agent has a mortgage calculator on their website, you've seen how inaccurate such things can be. Frankly, it's illegal as I understand the regulations for anyone except a licensed banker to qualify anyone for a mortgage loan. All I can do, as a real estate agent, is to give you some very limited guidance and I always direct my clients to Emi Kalici of Weichert Financial who works in my office in Tenafly. There are many factors involved in determining what you can not only afford but can qualify for in a mortgage loan. For example, maybe when you look at your budget, you feel you can afford a \$200,000 mortgage easily but when the banker looks at your credentials, the mortgage system will only allow you \$170,000. And, just to make things a bit more complicated, there isn't just one 30 year fixed rate loan - there are dozens of varieties.

An excellent licensed mortgage banker working at a direct lender FDIC bank which also brokers out loans should be completely familiar with VA loans. VA loans are terrific opportunities for veterans and well worth investgating. But, again, only a licensed banker who knows what they're doing can tell you what's truly possible and right for you. Once you establish your budget correctly, then you find yourself a good agent and that agent has to work within your budget.
VA won't let you go up to \$1700 a month, and the way you worded the income would cause me to ask for more info, usually that wording would indicate sales or self employed. Based on how much real estate taxes are in the area \$200.000 sounds about right, maybe a little conservative but not by much.

Don;t close the credit cards when you pay them off, that would hurt your credit score. Good luck,
Hi Cb,

Today's VA rate is 3.75% with a 740 score, a bit higher with a lower score. VA offers 100% financing
250K purchase price, first time VA use is 2.15% added to your loan amount....so:
Loan amount now 255,375 @ 3.75% 30 Years fixed Pincipal and interest payment = \$1182.68
Homeowners Insurance estimated 80.
Taxes estimated 240.
Homeowner's Association estimated 80.
Grand Total \$1582.68
I am guessing in Teaneck, the taxes could even be higher. Talk with a good loan officer, make sure you have the tax info on the home you are interested in, then the L/O can give you EXACT figures.
Feel free to call me today and I can get your figures within minutes.
Regards,
Jim
I wish you well. It's not my feeling that going to such ratios is prudent but if this is what you've chosen to do after you've researched the options, that's your decision. What I can tell you is that in over 20 years I've never had any buyer lose their home even when they've lost their job for a period of time. Have fun in your new home.
dear barbara,
The 41% back end debt -to-income ratio is not ridiculous, it's the VA home loan guideline. I didn't make it up. We are getting one right now, and we are actually closer to 43%, but due to our residual income, it's okay.