If you’re considering a home purchase and exploring the possibilities of a VA loan, understanding the VA Residual Income Chart and Guidelines is crucial for a successful application. In this comprehensive guide, we’ll delve into the intricacies of residual income, how it influences your eligibility, and the key elements outlined in the latest VA Residual Income Chart for 2023.
How is residual income calculated and what does it mean?
Residual income is a key financial metric used in the evaluation of loan eligibility, especially in the context of VA loans. Unlike traditional debt-to-income ratios that focus solely on monthly obligations, residual income takes a holistic approach. It represents the amount of money remaining after covering necessary living expenses and monthly debts.
Calculation of Residual Income:
To calculate residual income, various factors are considered. Start with your gross monthly income—the total income before taxes are deducted. Then subtract all your monthly obligations, including credit card payments, student loans, car payments, and other living expenses such as child support, gas, groceries, taxes, and utilities related to the new home.
The goal is to ensure that after meeting all these financial obligations, there is still a substantial amount left to support your family and cover other essential costs. This careful evaluation helps lenders determine your ability to handle the additional financial responsibility of a mortgage.
VA Residual Income Charts
Here’s a breakdown of the minimum residual income requirements based on family size and geographic region. The following tables showcase the figures for loan amounts below and above $80,000. Residual Incomes by Region: Loan Amounts $80,000
| 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 |
| Over 5 | An additional $75 is needed for each additional family member, for a total of seven family members. |
| Family Size | NorthEast | Midwest | South | West |
| 1 | $450 | $441 | $441 | $491 |
| 2 | $755 | $738 | $738 | $823 |
| 3 | $909 | $889 | $889 | $990 |
| 4 | $1025 | $1003 | $1003 | $1117 |
| 5 | $1062 | $1039 | $1039 | $1158 |
| Over 5 | An additional $75 is needed for each additional family member, for a total of seven family members. | | | |
Understanding the Regions:
Northeast: Rhode Island, Vermont, New Hampshire, New Jersey, New York, Pennsylvania, Connecticut, Maine, and Massachusetts
Midwest: North Dakota, Ohio, South Dakota, Wisconsin, Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska
South: Alabama, Arkansas, Delaware, Florida, Georgia, Kentucky, Louisiana, Maryland, Mississippi, North Carolina, Oklahoma, Puerto Rico, South Carolina, Tennessee, Texas, Virginia, Washington DC, West Virginia
West: Nevada, New Mexico, Oregon, Utah, Washington, Wyoming; Alaska, Arizona, California, Colorado, Hawaii, Idaho, Montana, and Washington
Each region’s unique cost factors are considered in determining the minimum residual income required for VA loan eligibility. This regional specificity ensures a fair assessment, considering the diverse economic landscapes across the country.
VA Loan Debt-to-Income Ratios
In the realm of VA loans, understanding the Debt-to-Income (DTI) ratios is crucial for both lenders and applicants. The DTI ratio is a comparison of your monthly debt payments to your gross monthly income. The Department of Veterans Affairs provides guidelines for this ratio in its handbook, and it’s a significant factor in determining loan eligibility.
How DTI is Calculated:
Your DTI is calculated by dividing your total monthly debt payments (including the proposed mortgage payment) by your gross monthly income. For example, if your monthly debts total $2,000 and your gross monthly income is $6,000, your DTI would be 33.33%.
Importance of DTI in VA Loans:
While a DTI of 41% or less increases the likelihood of loan approval, exceeding this threshold doesn’t necessarily disqualify you. The VA recognizes that other factors, such as residual income, play a role in your ability to manage additional financial responsibilities.
What if Your Residual Income and DTI Don’t Meet Requirements?
In cases where your residual income and DTI fall below the specified requirements, all hope is not lost. Lenders employ a holistic approach, considering various compensating factors beyond these metrics.
Compensating Factors Include:
Credit History: A strong credit history, reflecting responsible credit usage and minimal consumer debt, can offset lower residual income.
Employment Stability: Demonstrating a history of long-term employment contributes positively to your application, showcasing financial stability.
Assets: Having available liquid assets and the ability to make a down payment can be viewed favorably by lenders.
These compensating factors provide a more comprehensive picture of your financial situation, potentially tipping the scales in your favor even if your residual income and DTI are not optimal.
Were You Turned Down for a Loan Because of Your Low Residual Income?
Facing loan denial due to low residual income can be disheartening, but it’s not the end of the road. Seeking a second opinion from another lender could offer a different perspective. The key is to find a lender who considers a broader range of factors, understanding that residual income alone may not fully represent your financial capability.
Factors for Reassessment:
Comprehensive Review: A new lender should conduct a thorough review, considering not only residual income but also compensating factors like credit history, employment stability, and available assets.
Expert Advice: Seeking advice from experienced mortgage professionals can provide valuable insights and potentially uncover aspects of your financial situation that were overlooked.
Remember, the denial from one lender does not dictate the outcome with another. The lending landscape is diverse, and each institution may have its own set of criteria and considerations.
Frequently Asked Questions:
Q: What is the Residual Income Rule for the VA?
A: The Residual Income Rule for the VA is a guideline used to assess the financial stability of VA loan applicants. It ensures that after covering monthly debts and essential living expenses, there is a sufficient amount of income left to support the borrower’s family and handle additional financial responsibilities, including the proposed mortgage payment.
Q: What are Residual Income Guidelines?
A: Residual Income Guidelines are benchmarks set by the Department of Veterans Affairs (VA) to determine the minimum amount of residual income required for VA loan eligibility. These guidelines vary based on factors such as family size, geographic region, and the loan amount. Lenders use these guidelines to evaluate an applicant’s ability to manage ongoing financial obligations.
Q: What is the Residual Income Requirement for VA Loans in 2023?
A: The Residual Income Requirement for VA Loans in 2023 is outlined in the VA Residual Income Charts. The requirement depends on factors such as family size, loan amount, and geographic region. These charts set the minimum residual income threshold that applicants must meet to qualify for a VA loan in the specified year.
Q: How Do You Figure Residual Income on a VA Loan?
A: To calculate residual income on a VA loan, begin with your gross monthly income (before taxes). Deduct all monthly debts (credit cards, student loans, car payments) and necessary living expenses (child support, groceries, gas). The remaining amount is your residual income. This comprehensive calculation ensures you have enough income to cover both existing and potential future financial responsibilities.
Conclusion
In conclusion, the journey towards securing a VA loan is multifaceted. While residual income and DTI are critical components, they are not the sole determinants of your eligibility. Lenders with a wealth of experience understand the nuances of individual financial situations, considering a spectrum of factors to make informed decisions.
As you navigate the VA loan application process, approach it with the understanding that there are opportunities for reassessment and avenues for securing approval, even if initial outcomes are less favorable. Embrace the guidance of seasoned professionals, leverage compensating factors, and embark on your homeownership journey with resilience and determination.
