How To Calculate Residual Income For VA Loans

Understanding residual income is crucial for veterans, active-duty service members, and their families seeking a VA home loan. The VA requires applicants to meet specific residual income guidelines to ensure they can cover their mortgage payment and other living expenses. In this guide, we’ll walk through how to calculate residual income for VA loans, explore the VA residual income chart and guidelines for 2024, and discuss essential aspects like VA maintenance calculation and residual income requirements by region.

What Is VA Residual Income?

Residual income is the discretionary money left over after covering all fixed monthly expenses, including debt payments, housing costs, and essential needs like food and gas. VA lenders use this figure alongside debt-to-income ratios to determine if applicants can afford the loan’s monthly payment. With no down payment required on a VA loan, the loan-to-value ratio (LTV) often starts high, so VA residual income guidelines help balance the risk by ensuring borrowers have sufficient income for all living expenses.

Related: Best VA Loan Lender

VA Residual Income Calculation Process

Here’s a step-by-step approach to calculating residual income for VA loans. While the final calculation is handled by an underwriter, this method offers an estimate of your amount of residual income:

1. Calculate Gross Monthly Income
   Combine all sources of monthly income, including salaries, bonuses, and allowances.

2. Subtract Taxes and Social Security
   Estimate deductions like federal and state taxes as well as Social Security contributions.

3. Deduct Monthly Debt Obligations
   Include payments for credit cards, car loans, and child support.

4. Account for Housing Costs:

   • Mortgage Payment: Principal and interest based on the loan amount.

   • Property Taxes and Insurance: Adjusted for your property location.

   • VA Maintenance Calculation: Typically, utilities are estimated at $0.14 per square foot of the property.

5. Subtract Total Expenses from Net Income
   Your residual income is what remains after all essential expenses and debts are covered.

Example of Calculating VA Residual Income

Let’s look at an example for a family of four in Illinois (Midwest region) with a loan amount of $250,000:

• Gross Monthly Income: $6,000

• Less Taxes & Social Security: -$1,200

• Net Income: $4,800

• Monthly Debts:

  • Car Loan: $250

  • Credit Cards: $150

  • Total Debt: $400

• Housing Costs:

  • Mortgage (PITI): $1,700

  • Utilities (1,800 sq ft): $252

  • Total Housing Cost: $1,952

• Residual Income: $4,800 - $2,352 = $2,448

For a family of four in the Midwest region, the required residual income is $1,003 according to the VA residual income chart 2024. With $2,448 remaining, this family exceeds the requirement, making them likely eligible for a VA loan.

VA Residual Income Chart 2024

The VA’s residual income requirements are based on household size and regional cost-of-living differences. Here are the updated 2024 residual income guidelines for loans above and below $80,000

Additional Factors Influencing Residual Income Requirements

Cost of Living by Region: The VA residual income guidelines vary by region. For instance, service members purchasing homes in the West typically face higher living expenses than those in the Midwest or South. This difference is reflected in higher residual income requirements for regions like California or Washington.

Debt-to-Income Ratio (DTI): Although debt-to-income ratios help lenders gauge financial stability, high DTI doesn’t automatically disqualify applicants if residual income meets or exceeds VA requirements by at least 20%. This is often referred to as a compensating factor, allowing more flexibility.

Special Circumstances and Compensating Factors: If a borrower’s residual income is slightly below the guideline, compensating factors like substantial savings or co-borrower income may still qualify them for a VA loan. However, a large shortfall in residual income could lead to rejection unless other compelling factors are present.

Tips for Meeting Residual Income Requirements

• Reduce Monthly Debts: Lowering monthly debt obligations can increase residual income and strengthen your application.

• Optimize Your Loan Amount: A smaller loan amount reduces monthly payments and increases the likelihood of meeting VA guidelines.

• Consider Utility Costs: The VA maintenance calculation estimates utilities based on property size. Reducing utility expenses can help boost residual income.

• Down Payment Benefits: Although VA loans require no down payment, a down payment can lower the monthly mortgage payment, making it easier to meet residual income requirements.

Why Meeting VA Residual Income Guidelines Matters

Meeting the residual income requirement protects veterans and service members from financial strain, making sure they have enough money for non-housing expenses like groceries, health care, and car maintenance. For those considering a VA loan, understanding and meeting residual income guidelines helps ensure financial stability and reduces the risk of foreclosure.

For veterans and active-duty service members, calculating residual income can provide insight into financial readiness. If you need more guidance, a VA loan specialist can help you calculate your residual income accurately and discuss options for maximizing your eligibility.