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How Do You Pass Residual Income on VA Loans
VA loans are hands down the best mortgage loan program. However, it is only available for active duty, retired veterans, or spouses of eligible deceased veterans. To qualify and be eligible for VA loans, veterans need to have earned their Certificate of Eligibility COE. VA loans do not have a maximum loan amount, do not have a maximum debt-to-income ratio cap for borrowers with sufficient residual income, do not have a minimum credit score requirement, and there is no mortgage insurance required. Eligible borrowers can get approved for VA loans with credit scores down to 500 FICO and a debt-to-income ratio exceeding 60% DTI with high residual income and compensating factors. Attached is a fresh guide about What is Residual Income and Why is it Important on VA Loans. It will give you a comprehensive overview of VA loans and the latest update on VA Residual Income Guidelines.
Below, we will cover Frequently Asked Questions about VA residual income.
Frequently Asked Questions about VA Residual Income:
Is VA Disability Income Considered in Residual Income?
VA disability compensation counts as eligible net income if you can show it will continue. Because it is usually not taxable, it can help your debt-to-income ratio. The actual payment amount is included in the residual income calculation.
Is it Possible to Use BAH and BAS to Apply for a VA loan?
If you can show that certain military pay allowances will continue, they can be counted. The lender will consider the type of allowance, your duty status, and whether the payments are likely to continue.
Does Childcare Count Against VA Residual Income?
When household circumstances necessitate it, if your household needs childcare, you should document and include those expenses. Since childcare costs might not show up on your credit report, make sure to mention them.
Can a Non-Borrowing Spouse Be Excluded From Household Size?
It’s possible. A non-borrowing spouse can be excluded if the lender confirms the spouse has steady, reliable work sufficient to support them. The decision must follow VA and fair-lending rules.
Do Utilities Count in VA Residual Income?
Yes. Maintenance and utility costs are included in your estimated monthly shelter expenses. The lender will make a reasonable estimate based on your specific property, not just a general number.
Can Cash Reserves Make Up for Low Residual Income?
Having a lot of liquid assets can help as a compensating factor, but cash reserves cannot replace the residual income calculation. If all your documents support approval, the underwriter must explain why they are making the request.
Does Residual Income Apply to a VA IRRRL?
Most of the time, full income-underwriting rules do not apply to a standard Interest Rate Reduction Refinance Loan. Some IRRRLs may need prior approval or credit checks and will be handled like a regular loan.
Can a VA Loan Be Approved With Residual Income Below the Guideline?
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It’s possible, but only if your debt-to-income ratio is 41% or less and the underwriter’s supervisor gives a well-documented reason. Approval is not guaranteed and must be based on strong compensating factors.
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VA Loans Residual Income Guidelines for Homebuyers
Learn about VA loans residual income guidelines, regional limits, DTI rules, calculation steps, and practical tips to help you qualify for a mortgage.
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How Do You Pass Residual Income on VA Loans?
To meet the residual income requirement on a VA loan, enough money must remain each month after paying the proposed mortgage payment, taxes, insurance, all monthly debt payments, payroll taxes, and any other expenses. VA refers to this amount of money as residual income.
Unlike conventional financing, residual income is a key factor in VA loans and is used to determine whether the veteran will have sufficient funds to cover living expenses after the loan closes.
On VA loans of at least $80,000, the residual income requirement for a majority of loans will depend on the borrower’s family size and geographical location. The minimum requirement for a one-person household will be between $441 and $491, and for a four-person household, between $1,003 and $1,117, depending on the location.
Lenders will divide the country into the Northeast, Midwest, South, and West divisions to determine the minimum residual income requirements.
There are Several Options Available to Borrowers with Residual Income Shortfalls:
- Reducing the proposed mortgage payment.
- Purchasing a lower-priced home, making a larger down payment, or securing a lower interest rate can increase residual income.
- Pay off current debts. Paying off an automobile loan, credit card debt, installment debt, or other qualifying debt that can be excluded under VA guidelines can substantially increase residual income.
Increase Income, Decrease Debt
Document all stable income, including employment, VA disability compensation, retirement income, Social Security, etc., as they may all help.
- Be careful verifying debts.
- Ensure the lender checks to confirm if the debts reported on the credit report actually need to be counted per VA guidelines.
- Be sure to review taxes and all applicable deductions.
- Residual income uses the borrower’s actual qualifying income and applicable deductions.
- Ensure the calculation includes the obligation and all required taxes (federal, state, and local).
- Consider all expenses related to the property.
- Property taxes, homeowners insurance, HOA fees, and maintenance, as well as utilities, can all impact the residual income calculation.
Non-Taxable Income and VA Residual Income
Non-taxable income can be advantageous when determining qualifying income for the debt-to-income ratio (DTI). However, on VA loans, borrowers must use their actual income, not a grossed-up amount, to determine residual income.
This is especially impactful for Veterans who receive VA disability compensation or other tax-free income.
Why Residual Income Is So Important on VA Loans
Because of the VA mortgage program’s focus on residual income, Veterans with a high DTI may still qualify for a solid loan package if they have a high income, good credit, and sufficient residual income to afford their mortgage.
Current VA residual income requirements and tables can be found in VA Pamphlet 26-7, Chapter 4: Credit Underwriting. The dated December 16, 2025, section of the Know VA shows the most recent updates.
In summary, to clear VA residual income, just look at the budget’s bottom line. It is not their bottom DTI. The biggest elements of the budget can be adjusted. Also, fully documenting all applicable sources of stable income can help a high-DTI marginal VA loan qualify.
https://gustancho.com/va-dti-mortgage-calculator/
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VA DTI Mortgage Calculator | Calculate Your VA Loan DTI
Use the VA DTI Mortgage Calculator to calculate what your housing payment and DTI on AUS-Approved and Manual Underwrites on VA loans.
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