VA Loan Residual Income Guidelines
Discover VA loan residual income guidelines for 2024, providing in-depth explanations and easy-to-follow charts to help you navigate your VA home loan eligibility and requirements.
Residual income is a crucial factor when it comes to VA loan approval. First, residual income refers to the net income you have left each month after all primary expenses are covered, including mortgage payments. Unique to the VA loan program, these residual income requirements aim to ensure that borrowers can manage their daily living expenses after making debt payments, thereby reducing financial risk.
VA residual income guidelines depend on factors like region, loan size and number of family members. Larger families and larger loans call for a higher residual income. In addition, regions with higher living costs tend to have higher residual income thresholds. The VA takes this all into account when deciding the annual residual income requirements.
Residual Income Charts
The VA categorizes the United States into four regions for residual income: Northeast, Midwest, South, and West.
Each region comprises specific states as follows:
- Northeast: Connecticut, Maine, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island and Vermont.
- Midwest: Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, South Dakota and Wisconsin.
- South: Alabama, Arkansas, Delaware, District of Columbia, Florida, Georgia, Kentucky, Louisiana, Maryland, Mississippi, North Carolina, Oklahoma, Puerto Rico, South Carolina, Tennessee, Texas, Virginia and West Virginia.
- West: Alaska, Arizona, California, Colorado, Hawaii, Idaho, Montana, Nevada, New Mexico, Oregon, Utah, Washington and Wyoming.
These regional divisions are essential when considering VA's residual income requirements since the income conditions change based on the cost of living in these regions. This allows for a fair assessment of a borrower's capacity to repay the loan.
The following tables illustrate the residual income requirements for loans below $79,999 and those above $80,000, providing a clearer understanding of your financial prerequisites for securing a VA loan.
Residual Income 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 | $1004 |
For families larger than 5, add $75 for each additional member up to a family of seven.
Residual Income 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 |
For families larger than 5, add $80 for each additional member up to a family of seven.
How to Calculate Residual Income with VA Loans
Understanding how to calculate your residual income can help you properly budget for a home purchase. To calculate your residual income, you need to subtract all costs that contribute to your debt-to-income (DTI) ratio from your gross income. The result will give you an estimate of the residual income you can expect after making your mortgage payment.
Use the following steps:
- Find your minimum residual income requirement from the provided tables, considering your loan amount, family size and region.
- From your gross income, subtract all debts and obligations, as well as expected monthly shelter expenses. This includes your estimated mortgage payment.
- Compare your calculated residual income to the minimum requirement to see if you meet the VA's guidelines.
For a more detailed calculation, consider using an affordability calculator to ensure a comprehensive understanding of your financial situation. Meeting these residual income requirements is a critical step toward leveraging the benefits of the VA loan program.
Why Does the VA Have Guidelines for Residual Income?
The VA's guidelines for residual income reflect a commitment to ensuring the financial stability and well-being of Veterans. The aim is to confirm that Veterans have sufficient income left over after making their mortgage payment to comfortably cover necessities.
These needs include daily and monthly expenses such as food, gas, clothing, healthcare and other typical family necessities. By setting these residual income guidelines, the VA hopes to prevent Veterans from becoming overburdened with their mortgage obligations while achieving homeownership.
Debt-to-Income (DTI) Ratio for VA Loans
The VA generally advocates for a DTI ratio of 41% or lower, including your mortgage payment. This percentage indicates a balance that should allow for a comfortable repayment of your debts without putting undue strain on your financial resources.
While a DTI ratio above 41% doesn't automatically disqualify you, the VA stipulates that your residual income must exceed the regional residual income requirement by at least 20%. For example, if you have a family of four in Michigan, your regional residual requirement is $1,003. If your DTI stands at 43%, your residual income must be at least $1,203 to qualify for a VA loan.
The concepts of residual income and DTI ratio are distinct yet interconnected, as both reflect your financial capacity. Residual income is an indication of your financial capabilities once major liabilities and obligations are met, while the DTI ratio measures the financial burden of existing debts.
When a lender assesses your eligibility for a VA loan, they examine your total debt payments against your total monthly income. This assessment gives lenders a better understanding of your overall financial position.
VA Residual Income Exemptions
Residual income guidelines also have some exemptions to be aware of. In some instances, lenders may exclude family members from the residual income calculation based on their financial situation or sources of income. These exemptions are designed to provide more accurate measures of financial capacity.
Here are a few situations in which lenders might adjust the family size in residual income calculations:
VA Residual Income Exemptions
Residual income guidelines also have some exemptions to be aware of. In some instances, lenders may exclude family members from the residual income calculation based on their financial situation or sources of income. These exemptions are designed to provide more accurate measures of financial capacity.
Here are a few situations in which lenders might adjust the family size in residual income calculations:
| Exemption | Description |
|---|---|
| Children who receive Social Security or disability income | If a child in the household is supported by Social Security benefits or disability income, lenders may exclude this child from the family size count in residual income calculations. |
| Child support and other forms of income | If a child receives sufficient child support or other regular income, such as foster care payments, lenders can choose to exclude them from the family size in the calculation. |
| Spouses with sufficient income | If a spouse not obligated on the note demonstrates stable and reliable income that can comfortably cover their living expenses, they can be omitted from the family size in the residual income calculations. |
| Active duty or retired service members | An active duty or retired service member could warrant a reduction of the residual income figure from the following tables by at least 5%. This applies when there's clear indication that the applicant or spouse will continue to benefit from using military-based facilities located near the property. However, if the VA office of jurisdiction has established a higher percentage, that specified percentage should be applied to that jurisdiction. |
These exemptions reflect the VA's commitment to creating accurate and fair assessments of a Veteran's financial capacity, providing a comprehensive and personalized approach to the VA loan approval process.