How Much Can I Borrow With a VA Loan in California?

We know from experience that military members and veterans in California have a lot of questions about the VA loan program. And we’ve covered many of them right here on our blog.

Today, we will answer one of the most frequently asked questions, which has to do with purchasing power: “How much can I borrow when using a VA loan to buy a house?”

Zero Down Payment Equals More Buying Power

Let’s start with some good news, before we get to borrowing limits. If you use a VA loan to buy a house in California, you could potentially finance 100% of the purchase price. This means you can buy a home with no down payment whatsoever.

This feature does two things. First of all, it eliminates one of the biggest hurdles to homeownership, so you can buy a house sooner rather than later. It also increases your buying power, since you don’t have to come up with a large upfront investment on a house.

But in order to qualify for the program, you have to meet certain guidelines relating to debt and income. So let’s explore those criteria next.

Debt-to-Income Ratio Limits for VA Loans

When you apply for a mortgage loan in California, the lender will determine your debt-to-income ratio, or DTI. This is true for FHA, VA and conventional loans alike.

Establishing the DTI ratio helps the mortgage lender determine how much you can borrow for a VA loan. It also helps to ensure that you are not taking on too much additional debt by assuming a mortgage loan obligation.

The Department of Veterans Affairs does not limit the amount of money you can borrow toward a California home purchase. As it states on the VA.gov website:

The VA-backed home loan limit refers to the amount we’ll guarantee (the maximum amount we’ll pay to your lender if you default on your loan). We don’t limit how much you can borrow to finance a home.

But they do establish some guidelines for the debt-to-income ratio mentioned above, and this could affect the amount you are able to borrow with a VA loan. In the official handbook for mortgage lenders, these guidelines go on for many pages.

Here’s the short version:

Official VA guidelines state that the “acceptable debt-to-income ratio” for a VA loan is 41%. But a borrower who has certain compensating factors could be allowed to have a DTI ratio above this limit.

Compensating Factors to the Rescue

If a borrower’s DTI ratio exceeds 41%, the mortgage underwriter will review the file to see if they can identify compensating factors.

In this context, a “compensating factor” is any condition that might offset the additional risk brought on by a higher debt burden. Examples of compensating factors for VA loans include, but are not limited to, the following:

• an excellent credit history
• long-term stable employment
• conservative use of consumer credit
• significant liquid assets
• satisfactory homeownership experience
• high residual income

The VA loan program has a lot of flexibility built into it. The Department of Veterans Affairs gives mortgage lenders plenty of leeway to make prudent lending decisions. Compensating factors are just one example of this.

Get Pre-Approved to Learn How Much You Can Borrow

If you’ve determined that you are eligible for a VA loan in California, and you want to find out how much you might be able to borrow, make mortgage pre-approval your next step.

Mortgage pre-approval is a useful process that helps you determine some important factors. First of all, it will confirm that you are in fact eligible for the VA loan program. The mortgage lender will review your Certificate of Eligibility to establish this.

The pre-approval process will also reveal how much you are able to borrow when using a VA loan to buy a house in California. Your lender will review your debt and income situation (as explained above) along with other factors to determine your maximum loan amount.

This is a crucial piece of information because it allows you to shop for homes that actually fall within your budget and price range. You can actually tailor the house-hunting process based on the amount you’re able to borrow with a VA loan.

Mortgage pre-approval can also increase the chance that the seller will accept your offer, once you’ve found a home you want to purchase. It’s like a certificate that shows you’ve been thoroughly screened by a mortgage lender and will likely be approved for financing.

Important Takeaways and Where to Learn More

We’ve covered a lot of important information here, so let’s wrap up with a quick summary. Here are the four most important points you should take away from this guide.

• No official limit: The VA doesn’t limit how much you can borrow, but lenders typically consider your debt-to-income ratio (DTI).
• Zero down payment: You can finance 100% of the purchase price, eliminating a major hurdle to homeownership.
• Debt-to-income ratio: The recommended DTI is 41% or below, but exceptions can be made with compensating factors like excellent credit history or stable employment.
• Get pre-approved: Pre-approval helps determine how much you can borrow and strengthens your offer when buying a house.

Have questions? Bridgepoint Funding specializes in the VA loan program and serves borrowers throughout the state of California. Please contact our knowledgeable staff if you have questions about your eligibility or the amount you can borrow.