What is Residual Income?

Residual income is the amount of money that is left over each month after all of your major expenses are paid – including housing, taxes, and debt payments. The money that remains is usually earmarked for things like groceries, gas and other regular household and family needs.

Residual income is sometimes confused for debt-to-income ratio, which is your monthly income vs. your monthly debt. Your debt-to-income ratio is used by your lender to determine VA loan eligibility. However, the Department of Veterans Affairs wants to make certain that you have enough money left over to take care of your day-to-day expenses.

In order to qualify for a VA loan, you must meet a specific residual income threshold, which varies depending on the size of your family and where you live.

Table of Residual Income by Region
For loan amounts of $80,000 or more
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
Over 5
Add $80 for each additional member up to a family of seven

 

The VA’s minimum residual income is considered a guide and should not trigger an approval or rejection of a VA loan on its own. Instead, it’s most often considered in conjunction with other credit factors. And although the debt-to-income ratio and residual income are decidedly different, they have an effect on each other. If your debt-to-income ratio is more than 41%, you must exceed the regional residual income requirement by at least 20%. So, if you have a family of four and you live in Michigan, your regional residual requirement is $1,003. If your debt-to-income ratio is 43%, you now must have a residual income of $1,203 to be approved for a VA loan.

Understanding the debt-to-income ratio and residual income balance can be difficult. That’s why it’s so very important to work with a mortgage lender who is experienced in dealing with VA loans. Your home loan expert should be able to explain the details that reflect your unique financial situation, and help you make any necessary adjustments in your budget so that you may qualify for a VA loan.

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Quicken Loans is more than just the nation's #1 online mortgage lender - they're leaders in helping veterans and service members obtain VA Loans. The Home Loan Experts at Quicken Loans make it their mission to provide a fast and easy-to-follow mortgage process. Find out how they can help you at www.QuickenLoans.com/VALoans or 800-967-6511!
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