VA Home Loan Residual Income Requirements
When veterans or service members apply for a VA home loan, one of the most important eligibility factors is residual income, which is the money a borrower is left with after paying certain monthly expenses.
Residual income requirements play a crucial role in protecting veterans and their families from financial strain, while limiting the risks for lenders and the government. This financial safeguard ensures that, after covering major expenses such as mortgage payments and debts, borrowers still have sufficient funds remaining each month for everyday living costs like food, transportation, and childcare. Because of such precautions, VA home loans have one of the lowest foreclosure rates of any type of mortgage.
If you’re considering a VA home loan, understanding how to determine your residual income and how it relates to your eligibility can help you prepare a successful application.
What Is Residual Income?
In the VA loan approval process, residual income refers to the amount of money a borrower has left each month after paying their mortgage, taxes, insurance, debts, and other essential obligations.
This is not the same as disposable income, which often accounts for luxuries or non-essential spending. Instead, residual income is a practical calculation of whether your household can realistically cover its daily living expenses after accounting for significant costs, such as rent, utilities, groceries, and medical bills.
To sum up, there are essentially three key income calculations:
- Gross income is your total earnings before taxes.
- Net income is your take-home pay after taxes.
- Residual income is what remains after subtracting mortgage, utilities, debts, and other essential expenses.
For example, while your gross income might look sufficient on paper, high recurring debts or utility costs could reduce what’s left in your budget. Residual income ensures lenders see the whole picture before approving your loan.
This focus on financial balance helps prevent borrowers from becoming “house poor”—a situation where the mortgage consumes so much of their income that little to nothing remains for daily living expenses.
How VA Residual Income Requirements Are Calculated
Residual income requirements are determined using a straightforward calculation. Lenders start by reviewing your gross monthly income, then subtract the following costs:
- Mortgage payment, both principal and interest
- Property taxes and homeowner’s insurance
- Approximate utility costs, such as gas, electricity, and water
- Recurring monthly debts, such as car loans, credit cards, student loans, etc.
- Child care or dependent care expenses, such as preschool, daycare, and child support
The remaining amount after these deductions is your residual income.
Example Calculation
Let’s use the following finances as an example for a Veteran applying for a VA loan:
- Gross monthly income: $6,000
- Mortgage payment, including taxes and insurance: $1,800
- Utilities: $350
- Car loan: $450
- Credit card minimum payments: $200
- Childcare: $600
Step 1: Start with gross income – $6,000
Step 2: Subtract mortgage – $4,200
Step 3: Subtract utilities – $3,850
Step 4: Subtract debts, i.e., car loan payments and credit cards – $3,200
Step 5: Subtract childcare – $2,600
In this example, the borrower has $2,600 left in residual income. To determine eligibility, a lender would then compare that figure to the VA’s regional residual income requirement for their family size.
Residual Income Charts
To establish a fair assessment of the borrower’s ability to repay the loan, the VA adjusts expectations accordingly. The VA organizes residual income requirements by family size and region of the country. These guidelines account for variations in the cost of living. For example, utilities and food may cost more in the Northeast than in the Midwest.
The four regions are as follows:
- Northeast – Connecticut, Maine, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, and Vermont
- Midwest – Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, South Dakota, and Wisconsin
- South – Alabama, Arkansas, Delaware, District of Columbia, Florida, Georgia, Kentucky, Louisiana, Maryland, Mississippi, North Carolina, Oklahoma, Puerto Rico, South Carolina, Tennessee, Texas, Virginia, and West Virginia
- West – Alaska, Arizona, California, Colorado, Hawaii, Idaho, Montana, Nevada, New Mexico, Oregon, Utah, Washington, and Wyoming
There are also two loan amount categories:
- Loans of $79,999 and below
- Loans of $80,000 and above
VA Residual Income by Region for Loan Amounts of $79,999 and Below
| Family Size | Northeast | Midwest | South | West |
|---|---|---|---|---|
| 1 | $390 | $382 | $382 | $425 |
| 2 | $654 | $641 | $641 | $713 |
| 3 | $788 | $772 | $772 | $859 |
| 4 | $888 | $868 | $868 | $976 |
| 5 | $921 | $902 | $902 | $1,004 |
For families with more than five members, an additional charge of $75 per person applies, up to a maximum of seven people per household.
VA Residual Income Chart for Loan Amounts Above $80,000
| Family Size | Northeast | Midwest | South | West |
|---|---|---|---|---|
| 1 | $450 | $441 | $441 | $491 |
| 2 | $755 | $738 | $738 | $823 |
| 3 | $909 | $889 | $889 | $990 |
| 4 | $1,025 | $1,003 | $1,003 | $1,117 |
| 5 | $1,062 | $1,039 | $1,039 | $1,158 |
For families with more than five members, an additional $80 per person applies, up to a household of seven.
Why the VA Has Residual Income Requirements
The VA created residual income standards to protect both veterans and lenders. By ensuring households have sufficient funds left over after their significant obligations, the VA reduces the likelihood of financial hardship and foreclosure.
This is one reason VA loans consistently demonstrate some of the lowest foreclosure rates compared to other loan types. Due to the government’s guarantee, Lenders see VA loans as less risky, making them more accessible to veterans and often more affordable, thanks to competitive interest rates.
Ultimately, residual income guidelines reflect the VA’s mission: to help veterans achieve homeownership while supporting long-term financial stability.
How to Meet VA Residual Income Requirements
Borrowers are often concerned that they may not meet the residual income threshold. If you’re concerned about this possibility, there are steps you can take to adjust your finances before applying for a loan. Here are some strategies to help meet these requirements:
- Reducing monthly debt: Paying down credit cards or refinancing car loans can free up monthly income.
- Budgeting utilities: Implementing energy efficiency upgrades or utilizing budget billing plans can lower average utility costs.
- Counting household income: In some cases, a spouse or working-age child’s income can be included in the calculation, even if they are not listed on the loan.
- Limiting new obligations: Avoid taking on new debts, such as financing furniture or buying a car, before your loan closes.
With some initial planning and strategy, you can improve your financial profile and ensure you meet or even exceed the required residual income level.
What Happens if You Don’t Meet VA Residual Income Guidelines?
Not meeting the residual income requirement doesn’t always mean an automatic loan rejection, though it could lead to denial in many cases. Lenders may consider other factors, such as:
- A strong credit score
- An established history of timely mortgage or rent payments.
- Significant savings or liquid assets.
- A lower-than-average debt-to-income, or DTI, ratio
However, if your residual income falls well below the guideline, approval becomes unlikely. In that case, you may need to adjust your financial obligations, reconsider the loan amount, or explore other forms of assistance.
Need Help Securing Your VA Home Loan?
While residual income requirements may seem rigid, residual income guidelines are in place to ensure you and your family have sufficient financial breathing room after covering major expenses—ultimately protecting your long-term stability.
If you’re beginning your homebuying journey, take the time to review your finances, estimate your residual income, and consider how residual income can affect your loan eligibility. Working with a trusted VA lender can help.
