VA Loans and Mortgages
VA Home Loan Guide
VA Home Loans are a great benefit to qualified eligible veterans. Use this VA Home Loan guide to navigate the mortgage process to your dream home. One of the...
When you apply for a VA home loan, lenders evaluate several factors to determine whether you can afford the mortgage. One of the most important is residual income.
Residual income is the amount of money you have left each month after paying debt obligations, including your mortgage, car loans, student loans and credit cards. The VA uses this number to help ensure borrowers have enough funds remaining for everyday living expenses.
The Department of Veterans Affairs sets minimum residual income requirements based on your loan amount, family size and geographic region.
Below are the VA residual income charts for loans below $80,000 and $80,000 or more, broken down by family size and location.
VA Residual Income Charts
| Table of Residual Incomes 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 | $1,004 |
| over 5 | Add $75 for each additional member up to a family of seven. | |||
| Table of Residual Incomes by Region for Loan Amounts of $80,000 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 additional member up to a family of seven. | |||
VA Residual Income Regions
| Geographic Regions | States |
|---|---|
| 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 |
How VA Lenders Review Residual Income
While inadequate residual income may be reason enough to deny a VA mortgage under certain circumstances, it’s not the make-or-break determining factor, according to the VA’s lender handbook, VA Pamphlet 26-7.
The handbook instructs VA lenders to review your residual income “in conjunction with all other credit factors” and financial qualifications to determine your loan eligibility.
If a lender determines a borrower’s residual income is marginal, it must also reference the borrower’s credit history and past payment history on similar housing expenses.
Can You Use Grossed Up Income For VA Residual Income?
The VA provides an option for mortgage lenders to increase a borrower’s income by “grossing up,” effectively adjusting non-taxable income upward. This can help VA borrowers who receive tax-free income qualify for a higher loan amount.
However, VA lenders are not allowed to gross up non-taxable income when determining your residual income. The VA wants to make sure you have enough discretionary income at the end of the month to handle any unexpected financial difficulties.
How to Calculate VA Residual Income
To calculate your VA residual income, follow these steps:
- Determine your gross monthly income. This will be your pre-tax income from all sources, such as salary, wages, commissions and any other regular sources of income.
- Subtract your monthly debt obligations, including credit card payments, car loans, student loans and other recurring debts.
- Subtract your anticipated VA mortgage payment. Make sure to count property taxes, homeowner’s insurance and any other housing-related expenses.
- Calculate your residual income. Once you’ve subtracted your monthly expenses and mortgage payment from your gross monthly income, the amount remaining will be your residual income.
Debt-To-Income Ratio Versus Residual Income
Another factor VA lenders consider is your debt-to-income ratio (DTI).
While residual income measures how much money you have left after major expenses, DTI shows what percentage of your gross monthly income goes toward debt payments, including housing costs and other obligations.
VA lenders may scrutinize borrowers with a DTI above 41%, but this threshold is not a hard limit. Lenders evaluate DTI alongside other factors, including loan size, family size and where you live.
In most cases, residual income carries more weight than DTI. Borrowers with a DTI above 41% may still qualify if their residual income exceeds VA guidelines by at least 20%.
If a higher DTI results from tax-free income, lenders can document this in the loan file and request approval with justification.
What Happens If Your Residual Income or DTI Does Not Meet Requirements?
When borrowers have low residual income or high debt ratios, some compensating factors may still help the applicant get a mortgage, according to the VA.
These factors include:
- Excellent credit history
- Conservative credit use
- Minimal consumer debt
- Long-term employment
- Significant liquid assets
- Sizable down payment
- Equity exists in refinancing loans
- Little or no increase in shelter expenses
- Military benefits
- Satisfactory homeownership experience
- Low DTI ratio
- Tax credits for childcare
- Tax benefits of homeownership
However, compensating factors generally cannot overcome a poor credit score.
Because lender requirements can vary, it’s best to speak with a VA-experienced loan officer about your specific situation.
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Brittany Crocker, a veteran with 11 years of service, is the former managing editor of Veteran.com and a University of Missouri Journalism alum. Her award-winning journalism has driven life-saving policy changes.
