For eligible active-duty service members, veterans and surviving spouses, the VA loan is a really good deal if youâre looking to buy or refinance a home. Its benefits include a 0% down payment and a funding fee between 1.25% â 3.3% depending on the size of your down payment or equity amount and whether itâs your first or a subsequent use of a VA loan. This can be paid at closing or rolled into the home loan instead of mortgage insurance.
You may be familiar with the fact that lenders take a look at your monthly debt payments in order to help determine how much house you can afford. However, VA loans also take into account the concept of residual income. Before we get to that, letâs touch on the basics.
Getting approved for a VA loan involves meeting various eligibility criteria, including guidelines for residual income. But what exactly is residual income and why does it matter for VA loans? This comprehensive guide will explain residual income requirements for VA loans, providing key information to position you for success when applying.
What is Residual Income for VA Loans?
Residual income refers to the net income remaining after all monthly debts and living expenses are paid. This includes your projected mortgage payment on the new home.
VA residual income guidelines aim to ensure borrowers have sufficient funds left over each month to cover necessities like food, clothing transportation and healthcare. Having adequate residual income helps reduce financial risk and confirms borrowers can manage their mortgage payment plus other daily costs.
Residual income is a distinct VA requirement separate from debt-to-income (DTI) ratios. While DTI measures total debt burden, residual income zeroes in on your remaining discretionary income after debts.
Why Residual Income Matters for VA Loans
VA residual income standards provide a practical test of affordability and capacity to repay the mortgage. This helps explain why VA loans have extremely low foreclosure rates compared to conventional loans.
By verifying adequate residual income, the VA reduces lending risks while still providing Veterans vital home financing options. Failing to meet guidelines can jeopardize your VA loan eligibility.
Unlike conventional loans, VA does not require a down payment. With no money down, residual income is one way the VA ensures Veterans can manage the new mortgage payment.
VA Residual Income Charts
The VA provides tables outlining minimum residual income requirements. These vary based on:
- Loan amount – Under $79,999 or over $80,000
- Family size – From 1 to 7+ members
- Region – Northeast, Midwest, South or West
Larger families and more expensive properties call for higher residual incomes. Regional tables reflect cost of living differences.
Here are the specific VA residual income charts:
For Loan Amounts Below $79,999
| Family Size | Northeast | Midwest | South | West |
|---|---|---|---|---|
| 1 | $390 | $382 | $382 | $425 |
| 2 | $654 | $641 | $641 | $713 |
| 3 | $788 | $772 | $772 | $859 |
| 4 | $888 | $868 | $868 | $967 |
| 5 | $921 | $902 | $902 | $1004 |
*Add $75 per additional family member above 5, up to 7.
For Loan Amounts Above $80,000
| Family Size | Northeast | Midwest | South | West |
|---|---|---|---|---|
| 1 | $450 | $441 | $441 | $491 |
| 2 | $755 | $738 | $738 | $823 |
| 3 | $909 | $889 | $889 | $990 |
| 4 | $1,025 | $1,003 | $1,003 | $1,117 |
| 5 | $1,062 | $1,039 | $1,039 | $1,158 |
*Add $80 per additional family member above 5, up to 7.
Regions Defined
- Northeast – CT, ME, MA, NH, NJ, NY, PA, RI, VT
- Midwest – IL, IN, IA, KS, MI, MN, MO, NE, ND, OH, SD, WI
- South – AL, AR, DE, DC, FL, GA, KY, LA, MD, MS, NC, OK, PR, SC, TN, TX, VA, WV
- West – AK, AZ, CA, CO, HI, ID, MT, NM, NV, OR, UT, WA, WY
Calculating Residual Income
Figuring your exact residual income involves tallying up monthly debts, expected shelter costs and deducting them from gross income. Major debts include:
- Installment loans – auto, student, personal
- Revolving credit – credit cards, lines of credit
- Alimony, child support
- Monthly mortgage payment
- Estimated utilities for the home
Other qualified recurring expenses could factor in depending on your situation.
As an example
Income Variables | Calculation
What Happens If Your Residual Income Or DTI Does Not Meet The Requirements?
Each mortgage lender has its own guidelines that they expect you to meet, and if you donât, you may be denied a loan. However, just because you donât meet all the qualifications doesnât mean your application will for sure be rejected. There are ways to avoid being denied a loan depending on the lender. For instance, if you have income streams from family members living in the home that arenât currently considered for loan qualification, the lender may allow you to use that money to lower the residual income guidelines.
Another way to help you get a VA loan is through compensating factors. There are specific compensating factors (positive aspects used to offset a negative in a borrowerâs loan application) that can help you qualify but canât be used to cancel out poor credit. This includes things like a median FICO® Score of 720 or higher or 3 months of mortgage payments in reserves.
See What You Qualify For
A VA residual income chart shows the housing prices of where youâre purchasing your property, depending on the location and the number of members in your household. The chart also illustrates the income conditions that the VA requires, including residual income requirements for loans below $80,000.
| Table of Residual Income by Region for Loan Amounts of $79,999 and Below |
|---|
| Family Size | Northeast | Midwest | South | West |
|---|---|---|---|---|
| 1 | $390 | $382 | $382 | $425 |
| 2 | $654 | $641 | $641 | $713 |
| 3 | $788 | $772 | $772 | $859 |
| 4 | $888 | $868 | $868 | $967 |
| 5 | $921 | $902 | $902 | $1004 |
| Over 5 | Add $75 for each addional member up to a family of seven. |
|---|
If you have a loan amount higher than $80,000, things break down as follows.
| Table of Residual Income by Region for Loan Amounts of $80,999 and Above |
|---|
| Family Size | Northeast | Midwest | South | West |
|---|---|---|---|---|
| 1 | $450 | $441 | $441 | $491 |
| 2 | $755 | $738 | $738 | $823 |
| 3 | $909 | $889 | $889 | $990 |
| 4 | $1,025 | $1,003 | $1,003 | $1,117 |
| 5 | $1,062 | $1,039 | $1,039 | $1,158 |
| Over 5 | Add $80 for each addional member up to a family of seven. |
|---|
VA Residual Income – The #1 Calculation You Need to Do So Your VA Loan Gets Approved!
FAQ
How is residual income calculated on a VA loan?
What does 120% residual income mean?
What is residual income on a loan?
How does VA loan verify income?
What is residual income in a VA loan?
First, residual income refers to the net income you have left each month after all primary expenses are covered, including mortgage payments. Unique to the VA loan program, these residual income requirements aim to ensure that borrowers can manage their daily living expenses after making debt payments, thereby reducing financial risk.
Do you need a residual income chart for a VA home loan?
For instance, a family of two in the midwest United States needs less money each month than a family of five on the west coast. Residual income charts ensure VA home loan applicants can handle their house payment plus other living expenses. VA residual income can be calculated accurately only by your lender’s underwriter.
How does residual income affect VA loan approval?
Residual income is a crucial factor when it comes to VA loan approval. First, residual income refers to the net income you have left each month after all primary expenses are covered, including mortgage payments.
Does the VA require less residual income?
The VA also requires less residual income for borrowers with loan amounts below $80,000. Here’s a look at the VA’s residual income charts by loan amount and region. Scroll to the third chart to see which region your state is in. For families over five, add $75 for each additional member up to a family of seven.