This Article Is About VA Residual Mortgage Guidelines On VA Loans For Borrowers
VA loans have a 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
- 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?
What Are Does VA Residual Mortgage Guidelines Mean
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’s but is calculated differently based on the size of family and 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:
- reserve accounts
- credit score
- the overall credit profile of borrowers
- debt to income requirements
Passing VA Residual Mortgage Guidelines Requirements
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.
Case Scenario On VA Residual Mortgage Guidelines
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 ratio’s, are calculated by net income
- Once again debt to income ratios are calculated from gross income, residual income is based off take-home pay
Veterans take-home pay = $4500 a month
- 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 effects each VA loan.
Qualifying For VA Loan With Direct Lender With No Overlays
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 caps at 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 Group has zero lender overlays on VA Loans
- Gustan Cho Associates has a national reputation in 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 Group 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.
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 getting 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. Contact us at Gustan Cho Associates at 262-716-8151 or text us for a faster response every day of the week. Or email us at email@example.com. 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 the clouds the qualifications for a VA Loan. Contact us at GCA Mortgage Group to get your TBD pre-approval started!