VA Loan Residual Income Charts and Requirements

VA residual income is the discretionary income leftover each month after paying all major expenses, including the mortgage payment. Residual income requirements vary by location, loan amount and family size.

The heart of this requirement is discretionary income. Residual income looks at how much money you have leftover each month after paying all expected expenses, like loans, child care, utilities and more. The VA wants to know that Veterans have enough residual income to cover things like gas, food, clothing and other typical family needs after the mortgage payment.

VA Residual Income Charts

VA residual income minimums reflect how housing costs and other expenses vary based on family size and where in the country you’re buying. That’s why larger families in the Northeast and the West need more residual income than similar families in the Midwest and South.

The VA also requires less residual income for borrowers with loan amounts below $80,000.

Here’s a look at the VA’s residual income charts by loan amount and region. Scroll to the third chart to see which region your state is in.

The VA instructs lenders to count all members of a household, including children from a previous marriage who depend on the borrower for financial support.

Lenders may be able to reduce the residual income requirement by 5 percent for active duty service members and borrowers purchasing within close proximity of a military installation. These borrowers may have access to cheaper, tax-free goods on the installation.

Calculating Residual Income for VA Loans

The VA residual income guidelines consider only significant monthly obligations. Lenders aren't going to hunt through your bank statements to determine how much you spend on small-ticket items.

Remember, your new mortgage payment will be a key component of the residual income calculation.

Here's an example calculation of residual income. In our example, we'll assume the Veteran makes $5,000 a month and has the following expenses:

VA lenders will multiply the home's square footage by 0.14 percent to estimate monthly utility costs. In our example, the $280 comes from the estimating utilities for a 2,000-square-foot home (2,000 x 0.14 = $280).

Lenders can pull most of these monthly expenses directly from your credit report. They may inquire about others in order to obtain the best estimate possible.

Residual Income and DTI Ratio

Residual income and debt-to-income ratio are interconnected financial guidelines for VA lenders. VA encourages lenders to put more weight on residual income than DTI ratio, and prospective borrowers with higher debt ratios will typically need to meet a higher standard for residual income.

At Veterans United, all borrowers with a DTI ratio above 41 percent must have enough residual income to exceed their guideline by 20 percent.

For example, a family of four in the Midwest would typically need $1,003 in residual income. But if their DTI ratio is higher than 41 percent, they’ll need at least $1,204 in residual income each month.

Offsetting Residual Income

Prospective VA buyers who have income streams within the household that aren’t being considered for loan qualification may be able to use that money to lighten their residual income guideline.

Lenders may be willing to remove family members from the residual calculations if a non-purchasing spouse or a working-age child has sufficient income to cover their monthly debts. This can include children who receive Social Security or disability income, child support and other forms of income, provided it’s likely to continue for at least three years.

It’s possible for a non-purchasing spouse’s income to offset any children living in the home for residual income purposes.

Here’s a general example of how this can work.

Let’s say our same Midwestern family of four is buying a $200,000 home. Normally, they would need at least $1,003 in residual income. But if the non-purchasing spouse has enough monthly income to cover their debts and the difference in residual income, lenders can treat this family of four as a family of three for residual income purposes.

In this example, the non-purchasing spouse would need at least $114 leftover each month after paying debts. That’s the difference between the residual requirement for a family of four ($1,003) and the requirement for a family of three ($889).

Guidelines and policies on residual income offsets can vary by lender. Veterans United does allow for residual offsets for eligible borrowers.