If you are considering buying a home and are interested in applying for a VA loan, you may wonder whether you will qualify. It is essential to understand the different factors that may affect your eligibility. While your financial history and FICO credit scores will undoubtedly be a part of those under review, another piece of your financial situation considered is your residual income.
As lenders, it is our job to help you secure the loan you need while considering your residual income. Doing this helps to ensure you will still have enough to support your family and take care of financial obligations other than your monthly debts. The VA residual income chart will assist you with determining how much assistance for which you may qualify.
Let’s take a deeper look at what residual income is so that you can have a clear understanding when reviewing the income chart. Then we’ll review how we as lenders take this information into account when working to help you secure the VA loan you need. We hope these residual income guidelines will give you more confidence as you walk through the application process.
What Is Residual Income and How Is It Calculated?
Your residual income is the remaining amount each month after paying your monthly debts (i.e., credit cards, student loans, and car payments) and any necessary living expenses for you and your family. These may include child support, gas for your car, groceries, taxes, etc. To calculate your residual income, also known as “discretionary income,” your lender must review more factors than simply considering your debt-to-income ratio.
Your residual income calculation will also consider estimated expenses for your new home, such as utilities. Note: mortgage insurance is not a requirement with a VA loan.
Your residual income is determined by subtracting the total of your expenses, like those mentioned above, from your gross monthly income (your income before taxes are taken out).
The goal of calculating your residual income, as well as debt-to-income ratio, is to ensure you will be able to pay the monthly mortgage payments outlined in your loan.
VA Residual Income Charts
These charts show minimum residual income requirements and are broken down based on region, allowing for consideration of family size and housing costs where you live. Following the charts, you will see a breakdown of each region to determine in which one your state is located.
Residual Incomes by RegionLoan Amounts <$79,999
|over 5||Each additional family member requires an extra $75 (up to 7 total family members).|
Residual Incomes by Region Loan Amounts >$80,000
|over 5||Each additional family member requires an extra $80 (up to 7 total family members).|
VA Residual Income Regions
|Northeast||Connecticut, Maine, Massachusetts New Hampshire, New Jersey, New York, Pennsylvania, Rhode, Island, Vermont|
|Midwest||Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, South Dakota, Wisconsin|
|South||Alabama, Arkansas, Delaware, Florida, Georgia, Kentucky, Louisiana, Maryland, Mississippi, North Carolina, Oklahoma, Puerto Rico, South Carolina, Tennessee, Texas, Virginia, Washington DC, West Virginia|
|West||Alaska, Arizona, California, Colorado, Hawaii, Idaho, Montana, Nevada, New Mexico, Oregon, Utah, Washington, Wyoming|
VA Loan Debt-to-Income Ratios
The Department of Veterans Affairs provides a handbook for best practices to VA loan lenders. This handbook allows lenders to come alongside the VA in efforts to assist veterans with obtaining a home loan.
According to the VA’s lender handbook, lenders should take into account other factors than just your residual income. Your debt-to-income ratio (DTI) shows lenders how much of your paycheck is already allotted to your monthly debts.
If your DTI is 41% or less, you may have a greater chance of being approved. However, this doesn’t mean you will not qualify for a VA loan if your DTI is more than 41%. If your amount of residual income is more than the minimum outlined in the charts above, it may help offset a higher DTI.
What If Your Residual Income and DTI Do Not Meet the Requirements?
You may have difficulty qualifying for a VA loan if your residual income and debt-to-income ratio do not meet the requirements. However, as mentioned above, there are several compensating factors that are taken into account by your lender, which may allow you to qualify still.
These factors can include the following:
- Credit: excellent history, a display of discretionary credit usage, and a small amount of consumer debt.
- Employment: proof of long-term jobs.
- Assets: available liquid assets and the ability to make a down payment.
This list is not exhaustive, as there are many more factors that your lender may consider, which could impact your ability to qualify.
Were You Denied a Loan Due to Low Residual Income?
It may be of benefit to you to have another lender review your information to get a final determination on whether you may qualify for a VA loan. As we have learned in this article, your lender should be taking into account more than just your residual income. If you have a low residual income, this can sometimes be offset by a low DTI or other compensating factors.
Apply For A VA Mortgage
At VA Loans for Vets, we have served countless veterans by walking them through the process of applying for and obtaining a home loan. Give us a call today at (602)-908-5849 to take your first step toward securing a VA loan.