Residual Income on a VA Loan

What is VA residual income?

VA loan graphicIn order to qualify for a home loan through the Department of Veterans Affairs, you must have a certain level of residual income.

This article will explain what residual income is, how it's calculated, and how it affects your ability to get a VA home loan.

What is Residual Income on a VA Loan?

If you're a veteran looking to purchase a home using your VA loan benefits, you may be wondering what the residual income requirement is. Residual income is the amount of net income remaining each month after deduction of all of your monthly expenses (including housing, taxes, and debt payments) (including housing, taxes, and debt payments).

Basically, the VA requires that borrowers have a certain amount of money left over each month after all debts and living expenses are paid.

This is to ensure that borrowers will still be able to make their mortgage payments even if their income changes or unexpected expenses arise.

There are a few different ways to calculate your residual income, but the most common method is to take your gross monthly income and subtract all major monthly debts and living expenses. This includes things like your mortgage payment, car payment, credit card payments, student loans, child care expenses, etc. 

So why does the VA require residual income? Well, it's important to remember that a VA mortgage is a government-backed loan. That means that if borrowers default on their loans, the VA will be on the hook for the loss. As such, they want to make sure that borrowers have enough money left over each month to cover their mortgage payments even if their income changes, or they encounter unexpected expenses.

VA Residual Income Guidelines

Veteran and family in fron of their new homeThere are a number of requirements that must be met in order to qualify for a VA home loan. One of these is the residual income requirement. This means that you must have enough income left over each month after all of your debts and other expenses are paid. The amount required will vary depending on the size of your family and the location of the home you are buying, but it is generally between $400 and $2000. 

While the residual income requirement may seem like a lot, it is important to remember that this is the amount you will need to have left over each month after all of your other debts and expenses are paid. This includes things like your mortgage payment, car payment, credit card payments, student loans, child care expenses, etc.

One thing to keep in mind is that the residual income requirement may change in the future. The VA reviews and updates their requirements on a regular basis, so it's important to stay up-to-date on the latest information.

VA Residual Income Calculation

Animated calculatorAre you a veteran looking to get a VA home loan? If so, you'll need to make sure you meet the residual income requirement. But what is residual income, and how do you calculate it?

For example, let's say you make $3,000 per month and have $1,500 in monthly expenses. This means you have $1,500 in residual income each month.

The VA requires that borrowers have a certain amount of residual income in order to qualify for a home loan. The specific amount will depend on factors like the size of your family and where you live. However, the VA generally recommends that borrowers have at least $100 in residual income each month. The minimum residual income threshold required by the VA is regarded to be a guidance and should not, on its own, result in the acceptance or denial of a VA loan.

If you're not sure whether you meet the VA's residual income guidelines, talk to a loan officer. They can help you figure out whether you qualify for a VA home loan.

VA Residual Income Chart 2022

The Department of Veterans Affairs (VA) has a residual income requirements for home loans that are less than $79,999 and loans that exceed $80,000. The amount required varies by loan amount and family size.

For example, for a loan amount of $700,000 and a family size of four, the VA requires a residual income of $5,337 per month. This means that the borrower must have an income of at least $5,337 per month after paying all debts and expenses.

The VA's residual income requirement is designed to ensure that borrowers can afford their home loan payments. It is important to remember that this is just a minimum requirement—borrowers are encouraged to aim for a higher residual income to give themselves more financial flexibility.

The VA's residual income requirement is just one of many factors that lenders will consider when determining whether to approve a home loan. Borrowers should also be aware of other requirements, such as credit score and debt-to-income ratio.

Residual incomes by region

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

VA-residual-income-less-than-80000

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

Residual income over 79999

What if I don't meet the minimum VA residual income?

According to the VA, even if a potential borrower has a low residual income or a high debt ratio, there are certain compensating factors that could still help the applicant get a mortgage, including:

  • conservative use of consumer credit,
  • excellent credit history,
  • high residual income,
  • little or no increase in shelter expense,
  • 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,

Does My VA Disability Count as Income?

If you're a disabled Veteran receiving benefits from the Department of Veterans Affairs, you may be wondering if your disability payments count as income for the purposes of qualifying for a home loan. The answer is yes! In fact, any type of residual income can be used to qualify for a VA home loan.

The Department of Veterans Affairs (VA) does not withhold taxes from disability benefits that are paid out to veterans. On your tax return, there is no requirement for you to report them as income. Disability compensation and pension payments for disabilities paid either to veterans or their families are examples of benefits for disabled individuals that are exempt from taxes.

How Does Residual Income Work for VA Loans?

When you're applying for a VA home loan, your residual income will be taken into account when determining whether you qualify for a VA loan. Lenders will look at your total monthly residual income to see if it meets the minimum requirements set by the VA. If it does, you'll be one step closer to owning your own home.

If you're a disabled Veteran, and you're looking to buy a home, you may be wondering how residual income works for VA loans. As with any other type of loan, your residual income will be taken into account when determining whether you qualify for the loan. Lenders will look at your total monthly residual income to see if it meets the minimum requirements set by the VA. If it does, you'll be one step closer to owning your own home.

Can VA Residue Income Be Grossed Up?

When it comes to a VA home loan, one of the key eligibility requirements is that the borrower have sufficient income to cover their monthly mortgage payments. For many borrowers, this income requirement can be met by their regular earnings from employment. However, there are other sources of income that can also be used to qualify for a VA home loan, including residual income.

Residual income is a stream of earnings that continues even after the initial work has been completed. It can come from a variety of sources, such as royalties from the sale of intellectual property or ongoing payments from an annuity. As long as the borrower has a steady stream of residual income, they may be able to use it to qualify for a VA home loan.

In the process of determining your residual income, VA lenders are prohibited from grossing up non-taxable income for the residue income analysis. The VA and lenders want a clear look at your remaining discretionary income each month, in large part because that surplus helps ensure veterans are well-positioned to weather financial storms.

Rotating question markFAQs About Residual Income on a VA Loan

Q. How important is the VA residual income analysis?

A. The residual income analysis is a very important tool for the VA. It allows them to determine whether a veteran is able to afford their home and make their mortgage payments. This information is vital in order to make sure that veterans are not at risk of defaulting on their loans.

Q. What happens If your residual income or DTI does not meet the VA requirements?

A. If your residual income or debt-to-income (DTI) ratio does not meet the requirements set by the lender, you may not be approved for a loan. Lenders typically require a minimum residual income of $1,000-$1,500 per month and a DTI ratio of no more than 45%. If your ratios are too high, you may be asked to increase your down payment or find a less expensive home.

Compensating factors are yet another strategy that may assist you in acquiring a VA loan. You may be able to qualify for the loan if you have certain compensatory elements, which are good features that are used to counter a negative in a borrower's loan application; nevertheless, these factors cannot be used to wipe out low credit. Among them are factors like an average FICO score.

Conclusion

In conclusion,the 2022 residual income requirement for a home loan from the VA will be raised to $1,125. This is necessary in order to ensure that all veterans are able to afford their homes and maintain their quality of life. All veterans should budget accordingly and plan for this change. 

Recommended Reading

  1. VA Funding Fee: How to Calculate It
  2. VA Loan Gift Funds: How to Use Them to Close on a VA Loan
  3. VA Home Loan: See if You Meet the Income Requirements