If you are a veteran or service member, you may be considering applying for a VA loan to purchase a home. VA loans offer great benefits like no down payment and no private mortgage insurance (PMI). However, to qualify you need to meet residual income requirements. Below, we’ll explain what residual income is, how it’s calculated, and tips for meeting the requirements.
What Is Residual Income and Why Does It Matter for VA Loans?
Residual income is the income you have left over each month after paying your bills and expenses. To calculate it, take your gross monthly income and subtract your total monthly debts like car payments, credit cards, child support., etc.
Lenders use residual income guidelines to ensure borrowers can afford their mortgage payments and other living expenses. The specific requirements vary based on family size, location, loan amount, credit score, and debts.
How to Calculate Your Residual Income
To calculate your residual income, first add up your gross monthly income from your salary, bonuses, commissions, and other sources. Next, total your monthly debts like car loans, student loan payments, personal loans, and other forms of debt. Subtract your total monthly debts from your gross monthly income. The remainder is your residual income.
How Much Residual Income Do I Need?
Specific residual income requirements for a VA loan vary from one lender to the next. The VA suggests a debt-to-income ratio of no more than 41%. Borrowers in high-cost areas need higher incomes, while those in low-cost rural areas can qualify with less. The loan amount you are requesting, and your existing debts also impact your ability to qualify. Our mortgage experts can help you calculate exactly how much residual income you need for your unique situation.
Tips for Meeting Residual Income Requirements
If your residual income falls short, you have options:
- Increase your income
- Pay down debts to lower monthly payments
- Lower your requested loan amount
Meeting income requirements is not only important for applying for a VA loan. It’s also important to maintain adequate residual income long-term for the sake of your financial health and stability.
Let Us Help You Achieve Your Dream of Homeownership
Wondering if a VA loan is right for you? Not sure how to apply for a VA home loan? Our team at Mortgage Solutions Financial can help. We’ll help you assess your financial situation and get started on the path to your dream home. Contact us today!