Despite the fact that 9 out of 10 VA loans require no down payment, they remain one of the safest loans on the market for veterans, with a minimal number of loans going into default. One of the reasons for this unprecedented security is a unique income standard designed to ensure veterans can handle the financial burden of a new mortgage payment.
One component is for the VA to consider your RESIDUAL INCOME. Residual Income is money you have left over each month after all your major expenses are paid--including housing, taxes, and debt payments (cars, student loans, medical bills, credit cards, etc). Residual income isn't "fun money" though. While some of it may go towards entertainment purposes, the majority of it is likely earmarked for groceries, gas, and other household and family needs.
Residual income is different than debt-to-income ratio, another component the VA will consider in granting a loan, but it does work together with debt-to-income and other credit factors to determine your eligibility.
In order to qualify for a VA loan, you must meet a specific residual income standard, which varies depending on the size of your family and the region where you live:
TABLE OF RESIDUAL INCOME BY REGION
For loan amounts of $80,000 and above
Family Size Northeast Midwest South West
1 $450 $441 $441 $491
2 $755 $738 $738 $823
3 $909 $899 $899 $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
If you fall outside of these residual income boundaries, don't panic! It doesn't mean you will automatically be unable to obtain a VA loan. Everyone's financial situations are unique and a qualified mortgage broker who understands the VA loan process, like those here at Patriot Home Mortgage-Pacific Group, can expertly advise you of necessary budget adjustments to make so that you have the highest chance of qualifying. Speaking with a mortgage broker is a process you may want to start as much as 1-3 years in anticipation of buying a home, as getting that residual income/debt-to-income ratio balanced is crucial.
Rather than a punishment, VA Residual Income considerations are there to make sure you can still have a home AND a life. Make it work in your favor!