VA Loan Residual Income Requirement And Guidelines

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VA Loan Residual Income Requirement And Guidelines

This BlOG On VA Loan Residual Income Requirement And Guidelines Was UPDATED On November 6th, 2018

VA Loans is probably the best residential mortgage loan program in the U.S.

  • However, VA Loans is only for Veterans who have served in the Armed Services of the U.S. with an honorable discharge and a Certificate of Eligibility

VA Loans offers the followings:

  • VA Loan Programs are only available to Veterans of the U.S. Military with a Certificate of Eligibility
  • Zero down payment requirement
  • Home buyers can purchase a home with no money down and 100% financing
  • Mortgage Rates are one of the lowest out of all mortgage loan programs
  • No annual mortgage insurance premiums even with 100% Loan To Value
  • Requires Funding Fee
  • But the VA Funding Fee can be rolled into Loan Balance
  • 100% Cash Out Refinance permitted
  • Buyers are eligible to purchase a one to four unit owner occupant properties
  • The Department of Veteran Affairs does not mandate a minimum credit score
  • The Department of Veteran Affairs does not have a maximum debt to income ratio requirement
  • VA Loans have outperformed any other government loan programs such as FHA, USDA, Conventional Loan programs
  • Borrowers defaulting on VA Loans are much less than any other loan programs
  • Even though borrowers do not pay any money down on their home purchases
  • VA Loans are easier to qualify than any other loan program
  • Again, you need to be a Veteran with a Certificate of Eligibility to qualify
  • One of the greatest benefits of being a Veteran of the United States Armed Services is the ability to be eligible for VA Loans
  • Veterans who are eligible for VA Loan are under scrutiny of VA Loan Residual Income Requirement

What Is VA Loan Residual Income Requirement?

The United States Department of Veteran Affairs offers one of the easiest mortgage loan programs to qualify for. Again, not everyone can qualify for a VA Loan. Need to be Veterans of the United States Military with an active COE, which is short for Certificate of Eligibility.

Here are two important characteristics of VA Loans:

  • VA does not require a minimum credit score
  • Lenders set minimum credit scores as part of the lender Overlay
  • Home Buyers interested in finding more about qualifying for a VA Loan With Low Credit Scores or VA Loans With Bad Credit, contact Gustan Cho Associates at 262-716-8151 or text for faster response
  • Or email us at gcho@gustancho.com
  • Gustan Cho Associates at Loan Cabin Inc. has no overlays on VA Loans
  • VA does not have a maximum debt to income ratio requirement
  • I have gotten approve/eligible per Automated Underwriting System on VA Loans with under 600 Credit Scores and a 60% debt to income ratio
  • However, VA does consider residual income on factoring automated approvals

Importance Of VA Loan Residual Income Requirements For Borrowers With Bad Credit

VA Loan Residual Income Requirement takes residual income consideration on all Loans.

  • Residual income is defined as the amount of funds that is readily available to borrowers
  • Residual Income is taken into account after deducting all monthly expenses such as the following:
    • minimum monthly credit card debts
    • installment debts, student loans
    • auto loans
    • mortgage payments from borrowers monthly gross income
  • VA Loan Residual Income Requirement needs to have a certain amount of funds left over after the above deductions in order to cover other expenses
  • It cannot used in the calculation of borrower debt to income ratio which is called Residual Income

Examples of other expenses that needs to be covered with Residual Income are the following:

  • Groceries
  • Fuel
  • Utilities
  • Child Care
  • Savings and Reserves
  • Health and Auto Insurance
  • Cell Phone Bills
  • Internet and Cable Services
  • Entertainment and Vacations
  • Other Miscellaneous Expenses

Residual Income is normally calculated on the number of folks in the household of the Veteran borrower as well as the part of the country the home is located. The areas are classified as the following:

  • Northeast
  • Midwest
  • South
  • West

VA Loan Residual Income Requirement sets for VA Loans of under and over $79,999.

The main reason for VA Loan Residual Income Requirement is because the Department of Veterans Affairs wants to make sure borrowers has enough money readily available for everyday expenses such as the following:

  • groceries
  • cable
  • internet
  • utilities
  • child care
  • health care

Besides the new housing payment, VA wants to make sure new homeowner has enough to pay the above expenses. This is one of the main reasons why VA Loans have one of the lowest default rates out of any loan program.

Getting Automated Approval On A VA Loan With Low Credit Scores And High DTI

As I mentioned earlier, I got an approve/eligible per Automated Underwriting System on a borrower with a 580 Credit Score, 60% debt to income ratio, and open outstanding unpaid collections accounts. How is that possible? Here is why:

  • VA does not have minimum credit score requirements
  • VA does not have a maximum debt to income ratio requirement
  • This holds true as long as borrower has sufficient residual income
  • This borrower met all of the above requirements
  • Especially the sufficient VA Loan Residual Income Requirement

The key for sufficient residual income is the more income the VA borrower makes, the more residual income a borrower has.

For example, lets take a case scenario:

  • Total housing and monthly payments are $3,000 and borrower has monthly gross income of $5,000
  • 60% debt to income ratio with $2,000 in residual income
  • Borrower total housing and monthly payments are $6,000
  • Borrower has monthly gross income of $10,000
  • 60% debt to income ratio with $4,000 in residual income
  • Borrower with the higher monthly gross income has more residual income
  • So VA will consider borrower with more residual income a stronger borrower
  • Automated Underwriting System will likely favor the borrower with a larger residual income
  • Chances of getting an approve/eligible per Automated Underwriting System at 60% DTI and 580 FICO credit scores is likely

If you have any questions on VA Loans and need a VA Lender who has no overlays, please contact Gustan Cho Associates at Loan Cabin Inc. at 262-716-8151 or text for faster response. Or email us at gcho@gustancho.com. We are available 7 days a week, evenings, weekends, and holidays

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