How to Buy a Home on Active Duty Using BAH

Is VAH enough to buy a home while you're on active duty? In this video, I'm going to break down everything that you need to know about buying a home while serving on active duty, from how to qualify for the VA loan to exactly what lenders are looking for, what the VA loan analysis is. And also, I'm going to show you a real world scenario to see if it maybe fits your actual situation. So let's jump into the first point, which is how the qualifying works with the VA loan. The lender is going to be looking for four key things, and this is going to be your income, your assets, your debts, and then your credit. When it comes to your income, there's going to be different forms of income that are factored in based off of your LES. Now in your LES, you're going to have your base pay, which is going to be for your rank and also time of service. But then you're also going to have other forms of income like VAS and even potentially COLA, hazard duty pay, flight pay, all those other different forms of pay that could vary depending on where you're located or maybe what job that you are doing. Now, what you want to understand with these different forms of pay is how they're actually perceived with the lender. You see your base pay is actually taxable income, whereas the other forms of income that you may be receiving is going to be non-taxable income. This is a very important thing to understand because it also does affect how much you qualify for in the long run, because most of your income is not going to be taxed. The next form is going to be assets. When it comes to assets, the lender is going to be looking at things like your checking, your savings, 401k or TSP, any investment accounts that you may be having, and even also gift funds. If you are going to be receiving a gift from maybe a family member, a spouse, maybe it can be a friend, those, those funds could be used to help the overall loan process when it comes to your closing costs. Now, the thing that you also need to remember here is there is no minimum amount of reserves that you need to have. There's no minimum expectation for how much money needs to be in your bank account, reserves or assets are looked at to help strengthen, to strengthen the file. The next one is going to be your monthly debts. When it comes to debts, there's several different things on there that are factored in. So I tried to add in the most common ones. The first one that you'll notice on your monthly obligations is going to be childcare, and this is not childcare for, if you have like a child support or anything like that. This is for, if you have, if you have children and your children are in school or they're in like a daycare and you're paying monthly for that schooling, that does count as a monthly obligation on a VA loan analysis. So that's why I have that listed there. The other forms of obligations are pretty much all going to be on your credit report. So this is going to be things like your credit cards, auto loans, personal loans, student loans, any open 30 day charge accounts, federal debt. And then alimony child support or separate maintenance, though, those things may not be on your credit report. Those are also factored in if you have like a divorce decree or a court order for those particular things. So those will be things that the lender is looking for as well. And then the last of those four is going to be your credit. Now on the credit report, the VA does not technically state in their guidelines that there is a minimum credit score required. So what you need to now understand is even though there is no minimum credit score requirement on VA loans, VA does not actually do loans VA only guarantees alone, which means the VA only states what a veteran can and cannot have in regards to how they can get a VA loan. But the lender is the one that's actually doing your loan. So if you're working with a lender that says you need to have a minimum credit score of this or a minimum credit score of that, that's going to be the rule to get that loan from that particular lender. So what you need to understand is if that particular lender has a minimum credit score requirement of 620, that's just what the requirement is to get the loan from them. Whereas like me and my team, we can go as low as 580 and there's other lenders out there like that as well. The minimum credit score requirement is more looked at as a barrier to entry than anything else. There are situations where I've seen veterans be able to get a VA loan that have below a 580 credit score, but this is through what's called a manual underwrite, and this is where we're trying to overturn the underwriter's decision by providing compensating factors or additional information to support why this is still a good loan and why the underwriter should still allow this loan to be done. It's not always the easiest thing to do. It doesn't guarantee that it can be done, but it's just one of the forms where I have seen a veteran be able to still get a VA loan if they don't have the best credit profile or a high enough credit score to meet the minimum requirement. The next thing we need to talk about is going to be the VA loan analysis. Now you've heard me mention this a couple of times so far up until this point. So a VA loan analysis is essentially what's looked at to determine your overall ability to qualify. You see on this VA loan analysis, it encompasses several different things. The first one is going to be what is the shelter expense for the property that you're looking at buying? It's going to show the term. It's going to show the mortgage payment for principal and interest. It's going to show the property taxes. It'll show your hazard or homeowner's insurance and then any utility or maintenance costs if the property is like in HOA. This will show the total monthly payment there. And then you also see in the next section, it will outline all of your monthly debts or where, where the debt is paid to the monthly payment and the unpaid balance. The biggest thing you need to understand here is though with those monthly debts is it's keyword, the monthly portion of it. So the unpaid balance is actually not the biggest concern. It's the monthly amount because the monthly amount that you pay for those things is basically subtracted against what your monthly income is. So if you have high balances, I wouldn't worry too much about whether or not you're going to qualify. I would be focusing more on the monthly payment for those balances because that's what determines your ability to qualify. I've seen some small balances in terms of what somebody owes on something, but it has a large monthly obligation that could be far worse than somebody with a large balance with a very small monthly obligation because it goes against your overall monthly qualifying income. The other thing that is going to be on the DNA analysis that they're going to look at is this section here, which is your income and deductions. You remember earlier when I talked about the taxable portion of your income, where it's your base pay, whereas the BAH and the BAS and the other forms of income are non-taxable. Well, when they actually calculate this, the portion that will be listed on here, showing these different federal state retirement, social security deductions is going to be coming from solely your base pay, not the other forms of income. Here's what a debt to income ratios look like for different loans, including the VA loan. And the reason this is important is because a lot of veterans come to me asking about debt to income ratio on USDA loans is 41% or less conventional 50% or less FHA is 57% or less. And VA is 41% or must meet the residual income amount. What does this mean? Well, the residual income amount is going to be based off of a couple of things. First, it's based off of the region that the veteran is in, and then it's going to be based off of the family size. When you are looking at qualifying for a VA loan, the debt to income ratio is not the final answer or the final decision towards whether or not you can get that VA loan, it's going to be whether or not you meet the residual income requirement. I have seen many veterans with a 65% to even 70% debt to income ratio still be able to get a VA loan simply because they met the VA's residual income requirement. And this is a big game changer in terms of whether or not you can get that VA loan or not. And I'll show you here why, when I run some numbers for you guys and give you an idea of kind of what a scenario looks like for somebody, I created a little bit of an avatar for you guys to show you exactly how this would look. For an E-5 that's at four years, I looked up what the base pay is, and I also looked up what the BAH is. Now, BAH is heavily a local thing, right? It's depending upon what your duty station is. So I live in San Antonio, Texas. So I wanted to use Lackland or Randolph Air Force Base as the BAH. And so I'm using obviously an E-5's BAH with dependents. So this veteran has their base pay for an E-5 at four years, their BAH for E-5 with dependents. Then there's their BAS for being a enlisted airman and then their total monthly income for all three of those things combined. The next thing I wanted to do is show you the breakdown for the base pay minus the federal social security and Medicare. So I basically am already removing the deductions to show you how that would look on the tax basis. So if you'll notice, we go from $3,365.70 to $3,014.99 because we're subtracting out the federal social security and Medicare. So we have our post tax breakdown. We have our BAH, which doesn't change. BAS doesn't change, but now our new total is $5,431. And then I wanted to also add in this person has, let's say, $800 worth of monthly debts or for things other than housing, and I also wanted to use this situation as them being in the Southern region and a family size of two. So the residual income requirement for a family size of two is $738, but here's where we need to actually factor in some other information you see on a VA loan. Whenever a veteran has over 41% debt to income ratio in the VA handbook, it states that the lender must add an additional requirement to the residual income amount, and this additional requirement is 20%. So what this would do is it would take our overall income that we would have left over and we now need to increase it to $886 because 738 plus 20% is $886 I'll be honest with you is more common than I see a veteran have more than 41% than under 41% especially in today's day and age due to obviously cost of housing, it's gone up, right? So it's a lot more common for someone to have above a 41% debt to income ratio. So I also found a property here in San Antonio that was listed at 295,000. This property was, I believe about six or seven minutes away from Randolph Air Force Base. And, and what I'm now going to do is run some numbers to break down for you guys, what this would look like against what this veteran's overall income is. So I ran the numbers here, 295,000 for sales price, 30 year fix. I did 5.75. It's roughly right around where VA, VA interest rates are. It doesn't mean that rates can't be lower or, or higher, but it's just kind of more giving us a little bit of a ballpark for right now, we are going to bring up some additional numbers for what the overall funding fee is. If you're not aware, there is a funding fee on all VA loans. And you'll notice that right there where I have circled the 2.15%. The funding fee on VA loans is actually what funds the program. This is actually what keeps the VA loan to be able to be a zero down loan option. You see the VA is guaranteeing 25% of your loan in the event that you foreclose or default on that loan. So this is essentially what keeps the program from being funded by necessarily taxpayer dollars. It's funded by the program itself. So for veterans that are taking out a VA loan, if they're not collecting VA disability of 10% or more, they're not a Purple Heart recipient. And if they are not a surviving spouse, they're going to have a funding fee. And that funding fee is rolled into the loan. Again, this is there to support the program because the VA is guaranteeing 25% of your loan. This is what allows the loan to be truly zero down. And what also allows the loan to not have any private mortgage insurance as well. So what this will do is raise the loan amount from $295,000 to $301,000. So it affects the overall monthly payment by a very small amount because it's financing in the VA funding fee. This brings our total monthly payment for this property for principal interest taxes and insurance, and also HOA to $2,464.55. The next thing that we now need to do is we need to bring up our overall monthly income, the monthly debts, the residual income requirement, and the maintenance costs. What you're going to notice here is the maintenance costs. You're probably thinking, what do you mean by maintenance costs? Well, maintenance costs on a VA loan are actually required for all VA loans when it comes to the VA loan analysis. Now, this is not an additional fee that you're paying. This is not a bill. This is not anything like that, that you're actually physically paying. This is just a requirement that the VA is expecting you to have left over. What they're looking at is what is the square footage of the property that you're considering buying? And then they require you to multiply that square footage by 0.14 to come up with a number that the VA wants you to also have left over excluding all your additional bills or original bills that you already have in the event that there is any potential costs associated with maintaining that property. And that's where we get the $234.50 left over. So what you're going to see here is in this situation, this veteran would have $1,046.19 left over for this particular property. So now you guys can see exactly what is looked at for getting a VA loan when you are on active duty. I hope this helps somebody out there understand a little bit more about what lenders are looking for. If you want to get help or connect with me and my team, click the link down below in the description. I'd be happy to help you walk through the process of using the VA loan while you're serving on active duty. I have an amazing network of real estate agents around the country of over 18,000 real estate agents that are VA knowledgeable realtors. I can connect you with one of them. If you're trying to be connected with a VA knowledgeable realtor who really understands the VA loan. The last thing I want to leave you guys with, and it's the most important thing, Jesus loves you and he paid the ultimate price for your life. So if you turn to him, trust in him and believe in him, he has a beautiful plan and purpose for you and your family.