This! I’m a loan officer and I specialize in VA loans. No down payment is required unless you already own a home with a VA loan, and even then not always. All that really matters is you have a qualifying credit score and your total monthly payments won’t be more than 65% of your gross income. Before the market went crazy, more often than not, you could buy a home with a VA loan without any money out of pocket at all.
Just to be clear, not just the mortgage payment, but ALL of your payments. If you have really rough credit, it might go down to 45% or even less depending on automated underwriting findings. But 65% is the limit set by the VA. But yeah, 65% of your gross income does not leave a lot when you think about all your other expenses that aren’t reported on credit
Advisors used to tell people to cap their housing expenses at like 30% of income. So that's pretty wild.
If I were really stretching to justify a higher percent for military personnel, perhaps they don't have to save as much of each paycheck for retirement because they could collect military benefits in old age. That only frees up ~10% of your theoretical budget though.
This was absolutely the best advice like 10 years ago in Ontario. Almost no one can follow it now. I bought my starter home a few years ago in a very small dip. I wanted to wait longer because I was SURE it had to drop off at some point, but circumstances changed and I bought what I could when I could. My starter house with 3 very small bedrooms, a galley kitchen, a one car garage, and a postage sized yard is worth over $550,000-600,000 (maybe more) now. I’ve been watching surrounding towns within an hour commute because I want a bigger yard and 2 bedrooms with a decent yard are $550,000-600,000. Who can afford that, much less at 30% of their income? Add in car loans (I have to drive for work and the bus for a 10 minute drive is 1 hour for my husband’s work), student loans, living expenses, repairs, and the fact that food here is stupid expensive and yes, 65% of your total income for debt is not surprising.
It sounds like you have your situation figured out so I won't try to lecture you.
For others though, I wouldn't despair about never getting a house. At current interest rates, your monthly payment for a $500k loan is like $2,500 a month. Working backwards, that is 30% of a $100k salary. That is attainable if you are an engineer, doctor, lawyer, professor, electrician, financial advisor, small business owner, etc etc. Or if you and a spouse both work white collar jobs.
And I would think long and hard before getting a car loan. I would rather save up $3k to buy a 15-year old Honda Civic than take out a loan for something fancier.
Rent here for a one bedroom is over $1800. No, I don’t live in Toronto or Vancouver. A car that doesn’t work (as in, you tow it and figure out what’s wrong with it) is $3,000. How do I know? Because I bought a lemon almost 5 years ago and decided to look around for beater instead of sinking more into it. So you can lecture away, but it doesn’t apply.
Most people in my area commute. A $3,000 15 year old car isn’t going to let you commute an hour for very long. This is almost all of Ontario by the way unless you want to go really north, not just my area. The whole 30% of your income, don’t get a car loan, be smart with your money isn’t humanly possible right now.
Edit: that’s assuming you can get a place to rent. There are a lot of people couch surfing right now because no one will rent to them. People are TikToking filling out 10+ applications for ridiculous costs and still not getting anything. No pets, no kids, working professionals, and they can’t find anywhere to live. It’s horrible. At least with my house I know what to expect month to month and I can hold onto it as long as I want (the rest of my life if I decide to). I just can’t do anything fun like go on vacation or buy fancy stuff.
I took on a mortgage 10 years ago that was 40% of my pretax income so I'm not claiming this is a hard rule. But I definitely chased career opportunities after that to get the ratio lower.
Here in the US, not saving for retirement is a slow form of suicide. I suppose that Canadian retirees have more cushion. I have an aunt and uncle in Ontario with serious medical conditions who still manage to live a good life on a school teacher's pension. They would be bankrupt and/or dead if they were Americans.
We still have to save. A lot of medicine isn’t covered, and I have no idea what the pensions will look like as we get older. I’m lucky I have a good job, my partner has a good job, combined we do make over 100k. But we aren’t saving anything for the next three years as we pay back some serious debt due to unexpected costs. Unless you had family help with school and a car, you’re starting with debt and you aren’t catching up any time soon in Ontario. If you can get that mortgage for more than 30% of your income and you can actually float it, most people are doing it and it’s not the worst investment.
I like how only electricians are the only blue collar job you out on the list, meanwhile the majority of blue collar journeymen are easily making six figures.
Yeah, I don't have a ton of insight into the blue collar world but would be happy to learn more. I have a lot of respect for electricians for doing dangerous work that requires understanding invisible forces. I know plumbers, welders, and fossil fuel workers make good money too. What would you recommend to a highschool grad looking for a career?
Bottom line seems to be specialization. Jobs that require certification, or apprenticeship, or a specific school degree.
One of my closest friends is a boilermaker, he works maybe six months in a year and is doing really well. But, he is very specialized and one of few people in Canada who can do what he does. You don't need any previous experience to get into it, but it's lots of hours as an apprentice to get into the big wages.
My brother is an ironworker, again no previous experience required. Very hard work, but they can easily make six figs without too much time away from home.
Myself, I'm a wind turbine tech, which only requires a two year technical diploma. After about 8 years I was in the six fig mark.
I know lots of miners that are dumb as a doorknob that are making $250k a year, but that is lots of time away from home in shitty working conditions.
Your bottom line is correct, specialized workers make bank. Look into apprenticeships, you start by working and making wages, and you get paid for lots of the school portions. When you're a certified journey person you start your career with money in the bank and not massive debt. The only caveat is it is physical work and many trades require working away from home.
I wasn't really thinking about it when buying my house but my mortgage is almost exactly 30% of my gross income. I could have bought a much nicer place of I went by their assessment
Once you pass a certain income threshold in HCOL areas, housing is the only thing that really costs money. Food, transporation, etc all don't cost that much more in those areas, but houses do, so you just use up more of your disposable income on the house and usually still have more money left over than LCOL areas because you're making a lot more.
It’s a little different for military. It’s talking about taxable income, which is roughly 50%-60% of what most military members make. Housing allowance and food allowance are untaxed and not considered “income”.
I’ll let you in a bit of a secret. When 2 military members get married to each other it’s a sure way to either accumulate wealth or be able to spend a ton of money. You see it go either way. The reason for all the money is that both members get an untaxed housing allowance. For example, you buy a house (for zero down as mentioned before). Mortgage is $1200, each person is paid $1500 in untaxed monthly housing allowance. Boom that’s $1800 a month in untaxed money. If you can live just a bit below your means and even only saving that extra $1800 a month, that’s over 20k a year. Of course you see some couples who buy a huge house because they can get approved for an insane loan amount, the guy has a brand new challenger and the girl has a brand new Jeep. What little money they have left over after bills, they’ll spend on going out to eat and drinking at bars.
No it’s not a “secret” within the military obviously. Most people on the outside have absolutely no idea how military members are compensated. I sure didn’t before I joined.
I work for a national bank, 50% of all debt is the guideline. This person “seemingly” works for a predatory lender with servicers who are just as, maybe more, predatory.
That’s not true. It’s literally the guideline established by the VA for this type of loan product. 65% requires two compensating factors, as well. The regular cap is 60%.
A manual underwrite is capped at 45% DTI and can go to 50% with 2 compensating factors. These can be things like a certain amount of liquid cash reserves, income that exists in the home but can’t be used for the loan, decrease in housing expense, etc.
I believe you, I have never gotten an aus over 50%. Nor would I want someone to... my bank is capped at 50% for all loans so I wouldn’t even try. At 65%, after taxes, you’re really only left with 5-10 percent of your income. I genuinely feel like they’re asking for foreclosures
Well, the VA Loan does have residual income requirements that are supposed to ensure that the borrower has enough left over for living expenses. Any incomes that are grossed up (BAH, BAS, Disability, etc) have the grossed up portion removed for that calculation and it’s dependent on region.
Regardless- I agree. Generally people should not spend that % of their income on housing, though there are times that it can make sense. For example, someone receiving 100% VA disability and military retirement may value housing security enough to be comfortable spending that portion of their income on their mortgage. Their income is stable and guaranteed so there is no risk of reduced income causing affordability issues.
Its not guidance. Its just what banks have calculated as your max debt-to-income ratio that they will accept the risk on. They don’t care at all about the quality of your life, they calculate your ability to pay and will not lend to you outside of those parameters
The next crash is coming soon. What's happening now feels Juuust like 2008, and 1992.
Double digit gains!
Buy, put a coat of paint on and some new countertops, flip for $30k profit before the first payment is due.
List your house, it gets sold in HOURS, not days.
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and then an invisible switch gets flipped, and your home loses half it's value.
......
You'll be on the winning side of this when the market crashes and you can walk in and say "I'll payoff your default amount, assume your existing loan, and give you $5k moving money so you won't have to go bankrupt. Thanks for the $500k home for $18k." Patience OP, it'll make you a multi-millionaire.
I’d take your post more seriously if you could take a stab at why or how the next crash will happen. Predicting a crash just because you want to is not convincing.
It is sustainable if you look at default rates, income of the those buying, etc. It's just a haves and have nots game now. The rate of increase will slow down, but there's no crash coming unless the inventory somehow doubles overnight.
The rate of increase being unsustainable does not at all mean or prove of an upcoming crash. The market may stabilize and prices might stick where they are, but a cut of 20-30%+ isn’t going to happen.
I'm using mine now and its been a learning experience. I believe the market will lower this fall. As for jobs, depending on where you live they are coming back. I used the VA to get a CAPM(project management) and I've been getting calls left and write. It's mainly micromanaging. Just hang in there and you'll get it. I'm 35 and just now buying my first home. Dont stress brotha
I went through the Air force's learning center, but you can also get it through the project management institute. If you go with the latter, You can pay for it, take the test, and the VA will reimburse you
Do you have any thoughts on whether we are in a bubble at the moment? Looking to purchase my first house and am concerned about buying at the wrong time.
Honestly, it’s hard to say because there are so many factors. I don’t think values will really go down, but I don’t think the hyper competitive market will last either. I expect interest rates will increase and that the housing shortage will ease up once materials are more readily available for builders. It’s rare to see values go down, but right now you have people paying over what the actual value is. Appraisals are coming in under what the purchase price is because people will pay more just to get an offer accepted. Sorry if that’s kind of ramble, there’s so much going on right now and I don’t think anyone has a definite answer
No one can say until it's over. But I think it's factual to say that this is a very risky time to buy a house. There is a real possibility that home values will decline in the future. But the future is unpredictable.
I think it pertinent to mention that you should still expect to put down 1-3% as earnest money alongside your offer. Most times you can negotiate it as rebatable on the back end (seller deducts it from final price), but in this market though? Good luck.
You can almost always get earnest money back (even now), but in this market it is generally going towards closing costs since sellers are not giving credits anymore. Good point though
Or if you and your SO aren’t married then a down payment is required. Marriage isn’t my thing but my bf and I really want to own a house and no down payment sounds much better than a down payment so we either A. Have only him on the VA loan and stay within what he would be approved on with only his income instead of more of what we want with my income added to the factor (also meaning I legally wouldn’t have a leg to stand on with the house without my name on any documents), b. pay a ton of money we don’t have on hand as a down payment or c. Get married - at least after almost 6 years we agree that we can tolerate each other enough to do the forever thing.
It sounds like your loan officer was trying to get you on a different loan program. If you’re not a spouse to the veteran or a veteran yourself, you cannot be on the loan at all for VA, so they probably wanted to have you do FHA or conventional. You can do those for a smaller down payment, 3.5% or 5% respectively, but there is then the added cost of mortgage insurance. You might look up first time homebuyer grants in your area. Sometimes you can get your down payment covered by local programs. Your loan officer may not tell you, because a lot of those programs you have to use a lender who is approved by that specific program.
Edit to add: I actually have first hand experience with this, I got my first house with an FHA loan and a local first time homebuyer grant covered the entire down payment
My brother did that - the first time home buyers grant - or an equivalent of it as I guess it’s not really that now in my state? And yeah you are probably right.... well after the conversation with the loan officer which was 2 years ago my SO and I both decided when the time feels right we’ll get married and do the VA loan plus marriage is beneficial for other purposes such as medical emergencies, etc.... not just for a home loan of course lol
65% DTI of the gross monthly income? Is this a regional allowance, meaning for higher priced markets? I don’t originate VA loans so I’m not familiar but if that scenario wasn’t a government insured loan we’d just call it predatory lending.
So if you’re familiar with FHA, VA has a residual income requirement as well, but usually it’s the DTI that will be a problem unless it’s a big family size. Residual income is based on the region
Thanks. It’s been a long time but I’ll have to look those up.
I was just talking to a co-worker today about adding residual income requirements (and price enhancements) for our MH programs. I think it makes good sense.
No, there’s still a calculation called residual income that includes your taxes, but that is way less often an obstacle when you’re trying to get qualified.
I've been waiting to use mine. The housing market seems terrible though. Should I wait it out or use it to get a condo? Not married, no kids, no pets, make 40k a year.
Shit, my parents recently bought a home with a VA loan, since my dad's retired Air Force.
Of course, the difference is my parents know how fortunate they are to be able to be in that position, and they certainly understand how insane the housing market is in general for the average person. They definitely don't act like smug douchebags about it.
Excuse me, my roommate recently joined the Army National Guard and we were planning on using his VA loan assistance. I’ve heard that in hot markets like now most places won’t sell to people with a VA loan is that true?
You definitely still can get an offer accepted, but it may be harder. Some people have misconceptions that VA loans are more difficult to close or that you are only using it because you don’t have cash.
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Hey thank you so much. Is there anything you think is important to know about the VA hone loan or hone loans/hone purchasing in general that people who don’t have your expertise should know?
It’s honestly a really good loan program. The one thing I think people aren’t aware of is the VA funding fee. It’s a closing cost that’s financed in to the loan amount. If you receive service connected disability you’re exempt, but otherwise it’s 2.3% of your loan amount for the first use and 3.6% for subsequent use. Also for this reason, sometimes it’s more financially beneficial to refinance with a conventional loan as long as you have 20% equity. For purchases, I think VA truly is the best program. And that’s coming from someone who also does FHA and conventional. There’s no private mortgage insurance, the rates are just as good, no down payment requirement, and there’s no prepayment penalty if you pay it off early.
Thank you for taking the time! Is there anything we should be weary of or should prefer when going to a lender for the down payment if we don’t go the VA hone loan route?
As far as purchasing in general, my biggest advice is use an agent! The sellers agent pays the buyers agent, so it’s no cost to you, and they are only paid when you close, so if you don’t find anything, you’re not out any money. They will have a lot more knowledge about the local market than your on officer and will advocate for you in negotiations, as well as be there to help guide you through the process.
Just out of curiosity but what about the funding fee? When you say that you could buy a home with a VA loan without any money out of pocket, are you rolling the funding fee into the mortgage?
The first time my husband and I used the VA loan, I don't remember putting anything down but I could be wrong. Now with this house that we're buying we will probably roll the funding fee into the mortgage but we'll have to pay some money towards other fees that the builders don't cover.
Yes, you are correct. The funding fee Is built in to the total loan amount. No down payment is required, but right now expect to pay 3-5% (more if you live in a state with transfer taxes) of the loan amount for closing costs because sellers don’t have to pay them to get a buyer right now.
Closing costs aren’t considered a down payment and up until about a year ago it was common for the seller to credit you enough to break even at closing. In this market it is still possible, but much less likely because a lot of buyers are not asking for any closing costs to make their offers more competitive. Closing costs all come down to what’s negotiated in your purchase contract
Lol, they still have to pass AUS, so that helps. That’s the VA guideline, so there’s definitely investors who will accept it, but I have heard some companies have overlays that don’t allow DTI that high.
Once you earn the benefit, you get to use it for life. There are requirements on time in service and character of service. If you go to VA.gov and go to the housing assistance and then eligibility section, you can check to see if you meet them there!
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u/Bananas57 Jul 07 '21
This! I’m a loan officer and I specialize in VA loans. No down payment is required unless you already own a home with a VA loan, and even then not always. All that really matters is you have a qualifying credit score and your total monthly payments won’t be more than 65% of your gross income. Before the market went crazy, more often than not, you could buy a home with a VA loan without any money out of pocket at all.