Residual income is the amount of money that is left over each month after all of your major expenses are paid – including housing, taxes, and debt payments. The money that remains is usually earmarked for things like groceries, gas and other regular household and family needs.
Residual income is sometimes confused for debt-to-income ratio, which is your monthly income vs. your monthly debt. Your debt-to-income ratio is used by your lender to determine VA loan eligibility. However, the Department of Veterans Affairs wants to make certain that you have enough money left over to take care of your day-to-day expenses.
In order to qualify for a VA loan, you must meet a specific residual income threshold, which varies depending on the size of your family and where you live.
|
Table of Residual Income by Region |
||||
|
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 |
The VA’s minimum residual income is considered a guide and should not trigger an approval or rejection of a VA loan on its own. Instead, it’s most often considered in conjunction with other credit factors. And although the debt-to-income ratio and residual income are decidedly different, they have an effect on each other. If your debt-to-income ratio is more than 41%, you must exceed the regional residual income requirement by at least 20%. So, if you have a family of four and you live in Michigan, your regional residual requirement is $1,003. If your debt-to-income ratio is 43%, you now must have a residual income of $1,203 to be approved for a VA loan.
Understanding the debt-to-income ratio and residual income balance can be difficult. That’s why it’s so very important to work with a mortgage lender who is experienced in dealing with VA loans. Your home loan expert should be able to explain the details that reflect your unique financial situation, and help you make any necessary adjustments in your budget so that you may qualify for a VA loan.
Find an Experienced Lender
Most of us aren't accountants, and things like "debt-to-income" and "residual income" are more than we care to worry about. Instead, use our VA loan finder to find an experienced mortgage lender who can guide you through the process and determine your eligibility. We match you with up to five lenders, for competing rates, so you have plenty of choices.
