Last week I posted some information regarding VA residual income, but I didn’t really go into a lot of detail as to how its calculated and the factors that affect it. Here is a link to that last post – VA residual income. Residual income is basically the income left after all the expense of the house, day care if applicable and state and federal taxes. The VA has this requirement because they want to make sure the Veteran can afford the home and not get into any financial hardship. Remember too, that the VA will guarantee a portion of the loan to the lender so there is some level of risk for the Dept of Veteran Affairs.
Factors in VA’s Calculation for Residual Income
As I briefly mentioned above there are some specific calculations when determining a Veterans residual income. The way its calculated is all the same, but the outcomes can be very different. Another term for residual income is balance available for family support. Here is a list of deductions from a Veterans pay that will be used to calculate the left over balance: Federal taxes, State taxes, Social Security, Medicare, Debts and Obligations and Monthly Shelter Expenses.
Federal Taxes – We can all count on 2 constants in life, death and taxes. Anyone who makes money understands taxes so I wont go into detail about it.
State Taxes – See comment above.
Social Security – This is a depleting fund the government has set up to pay for others retirement and maybe your own. I doubt in my life time I will never see any money from SS when I retire.
Medicare – Another Government health insurance plan.
Debts and Obligations – This is all the debt – example – car payments, credit cards, installment loans, etc. This also includes child support and alimony.
Monthly Shelter Expenses – VA uses this to determine the amount of monthly expenses for the utilities like gas, electric, water/sewer and garbage. How much a Veteran actually spends each month for these housing expenses can and are obviously different from one Veteran to another, so the VA set the standard by multiplying the square footage of the home by .14 cents. For example if the SQ footage of a home is 2500 X .14 the monthly housing expense would be $350 per month.
Now that we know what to deduct from a Veterans pay, lets actually calculate the residual income.
Veteran (Mike) makes $4875.25 GROSS every month and has a wife who doesn’t work and 1 child and lives in the state of Utah and wants to buy a home for $150,000 that has 1850 SQ feet.
Federal Taxes Deducted $361.29 State Taxes Deducted $225.14 Social Security $301.27 Medicare $70.69 Debts and Obligations (including new mortgage payment PITI) $850 for debt
$1072.23 for mortgage
Total debt $1922.23Monthly Shelter Expense $259 Total Deductions $3139.62 So the gross is $4875.25 and the total deductions are $3139.62 which leaves Mike with a total amount balance of $1735.63 available for family support. In the last post I gave a table for residual incomes required by region and loan amount. The amount required for Mike is $990 (West, loan amount over $80,000 and family of 3). Based on this scenario Mike would be able to qualify for his home.
With this post and my last post I would think I have hit on all points of VA Residual income and can be used as a reference.
Nate has been working in the mortgage industry for 7 years, of which 5 have been with Veterans. He was the top producing loan officer for Flagship Financial Group in 2007 and has put in hundreds of hours to get licensed nationally. Nate loves spending time with his wife and four children. His hobbies and interests are: camping, working on cars, golfing and anything outdoors.Tags: VA Loan, va underwriting, veteran loan