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VA Loan Residual Income Requirements Defined

By: Grant Moon 03/06/13 10:21 pm

VA Loan Residual Income Requirements Defined

VA loans are characterized by several defining factors compared to other loan types with the most obvious requiring no down payment from the veteran. And even though zero down payment loans took a lot of heat over the past decade for contributing to the housing debacle, VA loans historically have always outperformed their conventional and government counterparts. VA borrowers simply pay their mortgage on time, more so than other borrowers. Then if a zero down payment contributes to higher default rates, then why is it that VA loans are the exception?

Yes, VA loans require no money down and yes, they’re easier to qualify for in many instances compared to conventional loans but VA borrowers are also scrutinized in another fashion that other loans do not have: residual income.

Residual income is the amount of money available to the borrower after all deductions, withholdings, housing and installment debt are subtracted from the gross monthly income. VA loans require that a borrower have a certain amount of money each month to cover other expenses such as groceries, entertainment and savings.

Residual income is based upon the number of people in the household as well as what part of the country the property is located. The geographic regions are the Northeast, Midwest, South and West and provide residual income requirements for loans under and over $79,999.

For example, a family of four living in New Hampshire must have $888 left over each month in take-home pay after all bills are paid. A couple living in California must have $823 in leftover money each month as residual income. The chart below identifies residual requirements by family size and region.

VA Residual Income Requirements by Region

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

5+

Add $80 for each additional member up to a family of 7.

 

 

 

 

 

 

 

 

One of the reasons VA loans have a higher performance rate is due to the requirement of residual income, and helps the veteran budget for everyday expenses and not having to worry about having enough money available for the mortgage.

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