When you apply for a home loan, lenders rely on your debt-to-income ratio -- that is, your monthly income versus your monthly debt payments -- to determine whether you qualify. For VA loans, the Department of Veterans Affairs includes an additional requirement known as residual income, which is the amount of money left each month after accounting for all your monthly expenses. Lenders, mortgage brokers and real-estate agents follow the residual income guidelines to determine your VA loan qualification.
Add all proposed housing costs, including monthly mortgage payments, insurance and taxes or the monthly escrow account charges. Also include an estimate of monthly utility charges, such as electricity, water and, if applicable, heating oil or natural gas.
Add the total monthly payments that the veteran makes for car loans, credit cards, alimony or child support, and other regularly recurring monthly debts.
Add the proposed housing costs and monthly payments together.
Subtract the combined total of the proposed housing costs and monthly payments from your monthly net income and, if applicable, your spouse's net income. The result is your residual income.
The amount of residual income required by the VA varies by geographical region throughout the country. The VA publishes tables showing the residual income requirements for each region.
Failing to meet the residual income guideline does not result in an automatic denial for a VA loan; however, a lender can use this as a reason to deny the loan.
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