Calculating VA Residual Income

An wooden key with the words VA loan, and a U.S. flag patch, all lying on a tableWelcome to our article on calculating VA residual income! If you're navigating the world of VA loans, understanding residual income is crucial. In this article, we will break down what VA residual income is, why it matters, and how to calculate it. So, whether you're a veteran or a lender working with VA loans, this information will help you better understand the financial requirements involved. Let's dive in and explore the ins and outs of calculating VA residual income.

Understanding Residual Income for VA Loans

When applying for a VA home loan, knowing how residual income plays a role is essential. Lenders will look at your total monthly residual income to determine if it meets the minimum requirements set by the VA. If your income meets the stipulated conditions, you'll be one step closer to owning your home.

Disabled Veterans should note that their residual income will be considered when applying for a VA loan. If your total monthly residual income is sufficient, you could be on your way to purchasing the home of your dreams.

VA Loan Residual Income Requirements

This is the amount you must have left over each month after paying all your debts and other expenses, such as your mortgage payment, car payment, credit card payments, student loans, and child care expenses. The VA regularly reviews and updates its requirements to keep up-to-date on the latest information.

How to Calculate VA Residual Income

There is no minimum residual income requirement from the VA, but most lenders want to see at least some positive residual income before approving a VA loan.

For example, if John Doe has a monthly payment of $3,000 and monthly expenses of $500, his residual income would be $2,500 ($3,000 - $500). If John had zero residual income, this would be cause for concern for most lenders, but with positive residual income each month, he should have no trouble qualifying for a VA loan.

2024 VA Residual Income Chart

For home loans under $79,999 and loans over $80,000, the Department of Veterans Affairs (VA) has a residual income requirement. Depending on the loan amount and family size, this requirement changes. For illustration, the VA requires a residual income of at least $5,337 per month for a borrower with a loan amount of $700,000 and a family size of four. After paying all debts and expenses, the borrower must have an annual income of $5,337.

The VA has a residual income required to ensure borrowers can afford their mortgage payments. The borrower is encouraged to aim for a higher residual income to give themselves more financial flexibility. It is important to note that this is just a minimum requirement.

Lenders will weigh Various factors before approving a home loan, including the VA's residual income requirement. Additionally, borrowers must know conditions like credit score and debt-to-income ratio (DTI).

Snited States geographic regions

Residual Income Chart for Loan Amounts Less Than $79,999

Residual Income Chart for Loan Amounts Less Than $79,999

Residual Income Chart for Loan Amounts Greater Than $80,000

Residual Income Chart for Loan Amounts Greater Than $80,000

Compensating Factors in VA Loan Approval

If the VA residual income or DTI (debt-to-income) ratio does not meet the requirements, it could affect the borrower's ability to obtain a VA loan. Residual income is the amount left over each month after paying essential expenses, such as housing, food, and transportation.

The VA requires borrowers to have a certain residual income level to ensure they can afford their mortgage payments. DTI is the percentage of the borrower's income to pay their debts, including the mortgage.

If the borrower's DTI ratio is too high, they have too much debt and may have trouble making mortgage payments. If the borrower does not meet the requirements for either VA residual income or DTI, they may need to improve their financial situation before being eligible for a VA loan.

The VA states that even if a potential borrower has a low residual income or high debt ratio, certain compensating factors could help the applicant get a mortgage, including:

  • conservative use of consumer credit,
  • excellent credit history,
  • high residual income,
  • little or no increase in shelter expenses,
  • long-term employment,
  • low debt-to-income ratio,
  • military benefits,
  • minimal consumer debt,
  • satisfactory homeownership experience,
  • significant liquid assets,
  • sizable down payment,
  • tax benefits of homeownership.
  • tax credits for child care, and
  • the existence of equity in refinancing loans,

Including VA Disability in Loan Income

As a disabled Veteran receiving benefits from the Department of Veterans Affairs (VA), you may wonder if your disability payments count as income to qualify for a home loan.

The answer is yes! Any residual income can be used to qualify for a VA home loan. Furthermore, VA does not withhold taxes from disability benefits, and you are not required to report them as income on your tax return. Disability compensation and pension payments for disabilities paid to veterans or their families are also exempt from taxes.

Grossing Up Non-Taxable Income in VA Loans

The VA allows non-taxable income to be "grossed up by 25%" for debt-to-income analysis but not for residual income analysis.

Conclusion: Calculating VA Residual Income

In conclusion, VA residual income plays a vital role in the approval process for VA loans, as it ensures borrowers have enough disposable income to cover their monthly expenses. By understanding how to calculate VA residual income, both veterans and lenders can make informed decisions that align with the requirements set by the Department of Veterans Affairs.

This financial measure not only safeguards the financial stability of veterans but also provides lenders with a clear picture of an applicant's ability to manage loan obligations. Armed with this knowledge, you can confidently navigate the intricacies of VA loans and make well-informed choices. So, take the time to delve deeper into VA residual income calculations and empower yourself on your journey towards securing a VA loan.

SOURCE:
Chapter 4. Credit Underwriting

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