VA Loans Residual Income Guidelines For 2022

Gustan Cho Associates are mortgage brokers licensed in 48 states

VA Loans Residual Income Requirements And Guidelines state borrowers can qualify for VA loans with a high debt-to-income ratio as long as they have strong VA residual income. VA loans have no maximum debt-to-income ratio cap on VA loans. We just go off the findings of the automated underwriting system (AUS). It is very possible for borrowers with over a 60% debt to income ratio to get an approve/eligible per automated underwriting system as long as they have sufficient residual income.

What Is VA Residual Income?

What is the VA loans residual income? VA loans residual income is the amount of discretionary monthly income the borrower has leftover after they have paid all of the monthly mortgage payments as well as all other household bills. The monthly residual income required on VA loans is dependent on the county and state, the loan amount, and the size of the household. In this article, we will discuss and cover the importance of VA loans residual income requirements.

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Strong Residual Income Will Get You AUS Approval With High DTI On VA Loans

VA loans have lenient mortgage guidelines. There is no maximum debt-to-income ratio on VA loans. Gustan Cho Associates have approved and closed VA loans with over 60% debt-to-income ratio. As long as you have strong residual income on VA loans, you can get an approve/eligible per the automated underwriting system on VA loans. VA Home Loans is the best loan program for owner-occupant home buyers.

What Is a VA Loan?

The U.S. Veterans Administration commonly referred to as the VA is the federal agency governing VA loans. The Veterans Administration is not a lender. It is not the responsibility to originate, process, underwrite, and fund VA loans. Private lenders who are designated approved by the VA originate, process, underwrite, and fund VA loans. Lenders can offer 100% with no mortgage insurance at competitive low mortgage rates on VA loans due to the government guarantee against loss and/or foreclosure on VA loans.

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What Does The VA Provide For Veterans?

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What Is A VA Loan and How Does It Work?

As mentioned in the previous paragraph, VA loans are the best home mortgage program in the nation. There is no other home mortgage program than VA loans. The U.S. government created VA loans to reward the brave men and women of the U.S. Armed Services who served this country voluntarily. The U.S. government wants to reward our servicemen and women by making it possible to make the dream of homeownership a reality with no down payment and no mortgage insurance at better rates than conventional loans.

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What Is Special About A VA Loan Versus Other Mortgage Options?

VA agency guidelines are more lenient than any other government and/or conventional loans. Not all members who served in the U.S. Military can qualify for VA loans. Only eligible active and/or retired members of the United States Armed Services who have earned a certificate of eligibility (COE) are eligible to qualify for VA loans. VA loans are the only home mortgage program that does not have a minimum credit score requirement. VA does not have a maximum debt-to-income ratio cap as long as the borrower has an approve/eligible per automated underwriting system (AUS).

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VA Loan Requirements For 500 Credit Score Homebuyers

The key to getting an approve/eligible per automated underwriting system on VA loans with credit scores down to 500 FICO is to have been timely on all monthly payments in the past 12 months. 24 months of timely payments are required on manual underwrites. The trick in getting an approve/eligible per automated underwriting system with a high debt-to-income ratio is to have strong residual income. Borrowers with strong residual income can get an approve/eligible per AUS with a debt to income ratio over 60% DTI. Gustan Cho Associates is a five-star national mortgage company licensed in multiple states with no lender overlays on VA loans.

Gustan Cho Associates Helps Borrowers With 500 FICO On VA Loans

VA Loan Eligibility Requirements To Qualify For Pre-Approval

In this section, we will discuss and cover the many benefits of VA loans versus other home mortgage programs:

  • The main benefits of VA Loans are 100% financing
  • No down payment
  • No closing costs with sellers concessions and/or lender credit
  • Lower mortgage rates than conventional loans
  • No annual mortgage insurance premium
  • No minimum credit score requirements
  • No maximum debt to income ratio requirements
  • Upfront VA funding fee can be rolled into the VA Loan Balance
  • As of January 2020, there are no more maximum loan limit caps on VA loans
  • The maximum loan limit used to be $548,250 until the maximum loan cap on VA loans was removed 
  • Prior to eliminating the maximum VA loan limit, any purchases over $647,680, buyers needed to put 25% on the overage of the $647,680
  • Very lenient credit guidelines
  • Borrowers can qualify for VA Loans 2 years after bankruptcy, foreclosure, deed in lieu of foreclosure, short sale

Borrowers passing the VA residual income test can exceed DTI by over 60%. In this blog, we will discuss the importance of the VA residual income test for borrowers with high debt-to-income ratios.

How Can I Qualify For VA Loans With High Debt To Income Ratios

VA loans do not have a maximum debt-to-income ratio cap as long as the borrower can get an approve/eligible per automated underwriting system (AUS). As long as the borrower has sufficient residual income, the automated underwriting system will render an approve/eligible per AUS. The Department of Veterans Affairs (The VA) has no maximum debt-to-income ratio requirements. Most lenders have additional mortgage guidelines on VA Loans called lender overlays.

What Is an Overlay in a Home Loan?

Overlays are additional mortgage lending requirements implemented by individual lenders that are above and beyond the VA. This is the reason why most lenders will require minimum DTI requirements such as 41% to 50%. Gustan Cho Associates is a national mortgage company licensed in multiple states with no overlays on VA Loans.

How Strong Residual Income Benefits Homebuyers With High DTI on VA Loans

We have approved and closed countless borrowers with credit scores in the 500s and debt-to-income ratios higher than 60%. However, an approve/eligible per automated underwriting system is required and borrowers need to meet the VA residual income test. VA residual income test is very important because it determines the residual income borrowers have after paying all of their minimum monthly bills including the proposed mortgage payment.

What Does VA Loans Residual Income Mean?

Many folks get VA residual income confused with debt-to-income ratios. VA residual income is the leftover money consumers have after paying all of the monthly minimum payments including the proposed housing payments. Residual income on the VA loans test needs to be met by borrowers. The minimum residual income depends on the number of family members in a household.

How Do You Calculate Residual Income on a VA Loan?

Another common frequently asked question on VA loans is how do you calculate VA residual income. Residual income on a VA loan is very simple. Residual income is the income that is left over after all the expenses of the borrower has been paid. The way VA residual income is calculated is by deducting all monthly debt payments that make up your debt-to-income ratio. Alex Carlucci of Gustan Cho Associates is one of our top loan experts on VA loans. Alex said the following with regards to how do you calculate VA residual income on VA loans:

Residual income is simply what’s left over after all your expenses are paid. To calculate that number, you simply subtract all the bills mentioned above that make up your DTI ratio. 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. Residual income and debt-to-income ratio are interconnected for VA loans and are most often considered in conjunction with other credit factors. DTI and residual income are decidedly different, but they affect each other. While it’s possible to qualify with a DTI that’s more than 41%, you must exceed the regional residual income requirement by at least 20%. So, if you have a family of four and live in Michigan, your regional residual requirement is $1,003. If your DTI is at 43%, you now must have a residual income of $1,203 to be approved for a VA loan. Understanding your debt-to-income ratio and residual income balance can be difficult. That’s why it’s important to work with a mortgage lender who is experienced in dealing with VA loans.

VA Residual Income Chart By Region For Loan Amounts of $79,999 and Below

Here is the Residual Income Chart:What Is Residual Income Mean?

VA Loans Residual Income Table By Broken Down By Region

For borrowers with higher than $80,000 household income, the following chart explains the VA Residual Income Requirements:

Do All Lenders Have Different Requirements for VA Loans?

Over 75% of our borrowers at Gustan Cho Associates are folks who either got a last-minute mortgage denial and/or could not qualify for a VA loan due to the lender’s lender overlays. As long as borrowers get an approve/eligible per the automated underwriting system (AUS), we are ready to approve and close the loan. We do not just close your VA Loans but rest assured that we will close them on time.

What Does VA Loans Residual Income Mean?

For Borrowers, VA loans have debt-to-income restrictions that are pretty straight forward but they also require a veteran passes the residual income formula. Many people ask, what is residual income? If you are applying for a VA loan with another lender I challenge you to ask your loan officer how residual income is calculated. Unfortunately, many loan officers in the industry cannot explain how residual income works when it pertains to a VA loan.

What Happens If VA Residual Income Or DTI Does Not Meet The Requirements?

They may issue you a pre-qualification letter based on your debt to income, and then once you start the process you may not pass the residual income qualifications. This will instantly kill your VA loan and you may lose your earnest money and out-of-pocket expenses such as appraisal and inspection. This is why it is important to come to the experts at GCA Mortgage Group. The team at Gustan Cho Associates will walk you through the process. Call us at GCA Mortgage Group at 262-716-8151 or text us for a faster response. Gustan Cho Mortgage Group offers the TBD underwrite. Part of that is verifying borrowers’ residual income. By now I’m sure you are asking what is residual income?

The Role Of DTI To Residual Income For VA Loans

In layman’s terms, residual income is the amount of money that is left over after paying all of your required costs of capital per month. This is also known as disposable income. Residual income is an important component of obtaining a loan. It is very similar to a back and debt to income ratio but is calculated differently based on the size of your family and the region you live in. Certain items such as the size of the home can come into effect in this calculation as well. This calculation is used in conjunction with other credit risk indicators such as the following:

  • loan-to-value
  • reserve accounts
  • credit score
  • the overall credit profile of borrowers
  • debt to income requirements

Passing VA Loans Residual Income Guidelines Requirements

VA Residual Income

Residual income calculations are something veteran borrowers must pass to obtain VA loans. VA loans do allow for higher debt-to-income ratios compared to conventional financing. But with debt to income ratios above 41%, the veteran must pass the residual income requirements by around 20%. As you can see residual income requirements are the highest in the western region. So for this example, we will use a VA loan in California with a family size of 5 and a debt-to-income ratio of 55%. Since the debt to income is above 41% you need to aim for 20% above the requirement. Veteran borrowers will need to have $1390 in residual income. If the borrower had a lower debt to income ratio for the same scenario they would need $1158 in residual income.

How Important Is Residual Income Analysis?

Residual income is a very important factor for lenders on VA loans. Residual income on VA loans helps lenders make a decision on whether or not the borrower has enough money and reserves for the ability to repay their new VA home loan. Residual income helps lenders determine how much money veterans have each month after paying all of their bills including living expenses, the sum of all monthly debts, the new mortgage, and any other expenses the veteran has. The VA residual income analysis helps determine the borrower’s ability to pay all of their debts, have general living expenses where they do not have to struggle financially, and be able to pay their mortgage payment.

What Is included in Residual Income on VA Loans?

 
Residual income is income that one continues to receive after the completion of the income-producing work. Examples of residual income include royalties, rental/real estate income, interest and dividend income, and income from the ongoing sale of consumer goods (such as music, digital art, or books), among others.

Let’s go over one more example from the Midwest region for a veteran buying a home in Illinois with a family size of 2 and a debt-to-income ratio of 47%. The Veteran is buying a home for $200,000. It has a total mortgage payment of $1700 including taxes and insurance. The veteran must have a residual income of 20% above the requirement of $889 due to the debt-to-income ratio. In this case, that amount is $1067. Remember the family size is two, husband and wife. Residual income unlike debt to income ratios is calculated by net income. Once again debt to income ratios are calculated from gross income, and residual income is based on take-home pay.

Veterans take-home pay = $4500 a month

Veterans Debts:

  • Mortgage = $1700 (includes principal, interest, taxes, and insurance)
  • Car payment = $300
  • Credit Cards = $50
  • Personal Loan =$50

DTI = 46.7% Residual income = $2190

  • (the maintenance expense was calculated off a home of 2000 square feet in this example)
  • In this scenario, the veteran does pass the residual income requirement

Maintenance expenses are based on the size of the home and added into the residual income calculations. As stated above, ask the loan officer if they can explain this. Chances are they are not aware of how residual income affects each VA loan.

VA Loans For Bad Credit And Low Credit Scores

The U.S. Department Of Veteran Affairs does not have a minimum credit score requirement or maximum debt-to-income ratio caps.

  • Why is it that most VA lenders require a 620 or 640 credit score?
  • Why is it that most lenders have a debt-to-income ratio cap of 45% to 50% on VA Loans?

This is not because of VA Guidelines, but because most VA Lenders have mortgage overlays on VA Loans. GCA Mortgage has zero lender overlays on VA Loans. Gustan Cho Associates has a national reputation for helping veteran home buyers with higher debt-to-income ratios and credit scores under 600 secure VA Home Loans. A large percentage of our borrowers at GCA Mortgage borrowers are veteran home buyers who currently are in Chapter 13 Bankruptcy Repayment Plan or recently had their Chapter 13 Bankruptcy discharged. There is no waiting period to qualify for VA Home Loans after Chapter 13 Bankruptcy discharge. Gustan Cho Associates Mortgage Group are experts in VA and FHA Manual Underwriting.

Best Mortgage Lenders For Bad Credit With No Overlays on VA Loans

Qualifying For A Mortgage With A Lender With No Overlays Borrowers don’t want to find themselves in a panic situation right before closing is supposed to happen. 75% of our clients have been denied by another lender or not gotten the correct information from their loan officers. That’s why it is important to contact the experts at Gustan Cho Associates for your VA mortgage needs. Each family has a different story and each will require a unique amount of residual income. As you can see this is one more aspect that clouds the qualifications for a VA loan. Contact us at GCA Mortgage to get your TBD pre-approval started! 

How To Get Started To Apply For a VA Loan With a Lender With No Overlays with the Best Rates

Borrowers who need to qualify for VA Loans with a national five-star mortgage company licensed in multiple states with no overlays, please contact Mike Gracz at Gustan Cho Associates at 630-659-7644 or text us for a faster response. Or email us at [email protected] We are available 7 days a week, on evenings, weekends, and holidays. Gustan Cho Associates Mortgage Group has zero overlays on VA loans. We just go off the automated underwriting system and not a single additional lending requirement above and beyond the minimum agency VA guidelines.