How Your Commute Could Negatively Affect Your VA Loan – And How To Stop It
When it comes to finding your dream home, there are a few things you should do. Thinking about location should be one of them. Whether you’re looking for a home in a nice neighborhood close to town or prefer something more rural, it’s important to understand that how far you have to drive to and from work can have an effect on how much money you can borrow. Below we explain how your commute could negatively affect your VA loan—and how to stop it.
According to Reuters, more than 10 million Americans commute more than an hour to and from work every day, and about 600,000 travel at least 90 minutes each way. That works out to a lot of expense in gas and vehicle upkeep.
If you drive more than a certain amount of miles to work every day, your VA mortgage lender may consider commuting expenses when deciding how much money they’ll loan you. This is because the monthly costs of commuting can factor into your debt-to-income ratio (DTI).
Policies vary between VA mortgage lenders, and some may not consider commuting expenses at all, but regardless of what they require, you should consider these expenses when determining how much you can afford for a mortgage payment each month. This is because increasing gas prices and unexpected repair costs could seriously impact your monthly budget.
Here are some tips about how this often works and what to do to prepare:
Calculate Commuting Costs
It’s very likely that a lender is going to look at the total miles you drive to work every day. Some lenders may include some “free” miles, but anything you drive over that may come with a cost. For example, your lender may allow a commute of 50 miles or less each way and value every mile over that at 50 cents.
If your daily commute is 60 miles each way (120 miles a day), you’re traveling 20 miles over the free miles.
Your VA loan officer will calculate your commuting costs as:
$10 excess per day
$10 x a five day week = $50 each week
$50 x 52 weeks = $2,600 each year
$26,000/12 = $216 each week
Your lender will then add the $216 to your monthly expenses, which will increase your DTI ratio. While that may not matter for everyone, if you have a high DTI, you may have to settle for a lower loan amount.
Commuting costs can also reduce your residual income, another important factor for VA borrowers.
It’s important to weigh the pros and cons of the location you choose. Living out of town in a more rural area will often let you get more house for your money, but it’s important to decide whether the cost of commuting will cancel out the savings.
This doesn’t mean that you have to reduce your search area – just that you need to be aware that commuting expenses should be considered if you’re looking at homes far from your workplace.
Anything that negatively impacts your DTI is important. Unless you have additional income streams or a way to offset expenses, the only viable solution for many veterans is to apply for a lower mortgage amount, which might make some properties too expensive.
Sources
http://www.reuters.com/article/us-usa-commute-costs-idUSKBN0E721M20140527
