VA Residual Income Requirements For High DTI Borrowers

by Alex Carlucci

VA residual income guidelines require borrowers have enough income set aside in savings or reserve funds after making all the household expenses. In other words, VA residual income is the overage in income after the borrower has met all of their minimum household monthly debt obligations.

VA Residual Income Requirements For VA Loans Is Based On Number Of People In Family And Region

The VA residual income is not a set number. The U.S. Department of Veterans Affairs sets the minimum VA residual income required by the number of people in the household and where they will be residing as their permanent residence. Borrowers with high debt to income ratio do not have a maximum debt to income limit if they have strong residual income.

VA Loan Requirements

VA Loans is probably the best residential mortgage loan program in the U.S.  However, VA Loans are only for Veterans who have served in the Armed Services of the U.S. with an honorable discharge and a Certificate of Eligibility.

Benefits Of VA Loans

VA Loans offers the following:

  • VA Loan Programs are only available to Veterans of the U.S. Military with a Certificate of Eligibility
  • Zero down payment requirement
  • Homebuyers can purchase a home with no money down and 100% financing
  • Mortgage Rates are one of the lowest out of all mortgage loan programs
  • No annual mortgage insurance premiums even with 100% Loan To Value
  • Requires Funding Fee
  • But the VA Funding Fee can be rolled into Loan Balance
  • 100% Cash-Out Refinance permitted
  • Buyers are eligible to purchase one to four-unit owner occupant properties
  • The Department of Veteran Affairs does not mandate a minimum credit score
  • The Department of Veteran Affairs does not have a maximum debt to income ratio requirement
  • VA Loans have outperformed any other government loan programs such as FHA, USDA, Conventional Loan programs
  • Borrowers defaulting on VA Loans are much less than any other loan programs
  • Even though borrowers do not pay any money down on their home purchases
  • VA Loans are easier to qualify than any other loan program
  • Again, you need to be a Veteran with a Certificate of Eligibility to qualify
  • One of the greatest benefits of being a Veteran of the United States Armed Services is the ability to be eligible for VA Loans

Veterans who are eligible for VA Loan are under the scrutiny of the VA Loan Residual Income Requirement.

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What Is VA Loan Residual Income Requirement?

The United States Department of Veteran Affairs offers one of the easiest mortgage loan programs to qualify for. Again, not everyone can qualify for a VA loan. Need to be Veterans of the United States Military with an active COE, which is short for Certificate of Eligibility.

VA Credit Score Requirements

Here are two important characteristics of VA Loans:

  • VA does not require a minimum credit score
  • Lenders set minimum credit scores as part of the lender Overlay

Capital Lending Network, Inc. dba CLN Mortgage has no overlays on VA Loans. VA does not have a maximum debt to income ratio requirement. I have gotten approve/eligible per Automated Underwriting System on VA loans with under 600 Credit Scores and a 60% debt to income ratio. The U.S. Department of Veterans Affairs considers VA residual income on factoring automated approvals.

Importance Of VA Residual Income Requirements For Borrowers With High Debt To Income Ratios

VA Loan Residual Income Requirement takes residual income consideration on all Loans. Residual income is defined as the number of funds that is readily available to borrowers

Residual Income is taken into account after deducting all monthly expenses such as the following:

  • minimum monthly credit card debts
  • installment debts, student loans
  • auto loans
  • mortgage payments from borrowers monthly gross income

VA Residual Income: Income In Excess After Paying Monthly Debt Obligations

VA Loan Residual Income Requirement needs to have a certain amount of funds left over after the above deductions in order to cover other expenses. It cannot be used in the calculation of borrower debt to income ratio which is called Residual Income.

Factors That Affect The VA Loan Residual Income Requirement

Examples of other expenses that need to be covered with Residual Income are the following:

  • Groceries
  • Fuel
  • Utilities
  • Child Care
  • Savings and Reserves
  • Health and Auto Insurance
  • Cell Phone Bills
  • Internet and Cable Services
  • Entertainment and Vacations
  • Other Miscellaneous Expenses

How Is VA Loan Residual Income Requirement

VA Residual Income is normally calculated on the number of folks in the household of the Veteran borrower as well as the part of the county in which the home is located. The areas are classified as the following:

  • Northeast
  • Midwest
  • South
  • West

Income Limits

VA Residual Income Requirement sets for VA Loans of under and over $79,999. The main reason for VA Loan Residual Income Requirement is because the Department of Veterans Affairs wants to make sure borrowers has enough money readily available for everyday expenses such as the following:

  • groceries
  • cable
  • internet
  • utilities
  • child care
  • health care

Besides the new housing payment, VA wants to make sure the new homeowner has enough to pay the above expenses. This is one of the main reasons why VA loans have one of the lowest default rates out of any loan program.

Getting Automated Approval On A VA Loan With Low Credit Scores And High DTI

As I mentioned earlier, I got an approve/eligible per Automated Underwriting System on a borrower with a 580 Credit Score, 60% debt to income ratio, and open outstanding unpaid collections accounts. How is that possible? Here is why:

  • VA does not have minimum credit score requirements
  • VA does not have a maximum debt to income ratio requirement
  • This holds true as long as the borrower has sufficient residual income
  • This borrower met all of the above requirements
  • Especially the sufficient VA Loan Residual Income Requirement

The key for sufficient residual income is the more income the VA borrower makes, the more residual income a borrower has.

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Case Scenario

For example, let’s take a case scenario:

  • Total housing and monthly payments are $3,000 and the borrower has a monthly gross income of $5,000
  • 60% debt to income ratio with $2,000 in residual income
  • Borrower total housing and monthly payments are $6,000
  • The borrower has a monthly gross income of $10,000
  • 60% debt to income ratio with $4,000 in residual income
  • A borrower with a higher monthly gross income has more residual income
  • So VA will consider a borrower with more residual income a stronger borrower
  • Automated Underwriting System will likely favor the borrower with a larger residual income
  • Chances of getting an approve/eligible per Automated Underwriting System at 60% DTI and 580 FICO credit scores are likely

If you have any questions on VA Loans and need a VA Lender who has no overlays, please contact us at Capital Lending Network, Inc. dba CLN Mortgage at 262-716-8151 or text us for a faster response. Or email us at gcho@gustancho.com. The team at Capital Lending Network, Inc. is available 7 days a week, evenings, weekends, and holidays.

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