Anytime someone wants to partake of the American Dream and own a home, they must go through a series of  checks and balances.  One of them is the capacity to make the payments every month.  This is calculated by determining the total debt ratio which is the gross monthly income divided by the total monthly debts; including the new mortgage payment.  Usually this is it when doing FHA or conventional loans. The VA, however,  has a step that trumps the debt-to-income ratio, called residual income, which has minimum standards depending on loan size, family size and geographical location.  The VA’s minimum residual income, which is also considered the balance available for family support, is a guide  and should not automatically trigger an approval or rejection of a VA loan.  Instead, it is considered in conjunction with all other credit factors.  An obviously inadequate residual income alone can be a basis for denying a VA loan. Sometimes the residual income can be marginal, but the VA can also look at other compensating factors such as good credit, monthly reserves and how the Veteran applying has handled their past housing expense.

The VA’s debt-to-income ratio is a guide and is an underwriting factor, however it IS secondary to the residual income calculation.  Over the years I have done many VA purchases and I have seen Veterans get approved and buy a home with over 55% DTI as long as they met the minimum residual income requirement.  I will now list what the requirements are in a table format:

Table of Residual Incomes for loan amounts of $79,999 and below

Over 5  Add $75 for each additional family member up to 7

Table of Residual Incomes for loan amounts of $80,000 and above

Over 5  Add $80 for each additional family member up to 7

Here are the states that fall into the regional locations determined by VA

Northeast

Connecticut, New Hampshire, Pennsylvania, Maine, New Jersey, Rhode Island, Massachusetts, New York, Vermont

Midwest

Illinois, Michigan, North Dakota, Indiana, Minnesota, Ohio, Iowa, Missouri, South Dakota, Kansas, Nebraska, Wisconsin

South

Alabama, Kentucky, Puerto Rico, Arkansas, Louisiana, South Carolina, District or Columbia, Mississippi, Texas VA loan, Florida VA loan, North Carolina VA loan, Virginia, Georgia, Oklahoma, West Virginia

West

Alaska, Hawaii, New Mexico, Arizona, Idaho, Oregon, California, Montana, Utah, Colorado, Nevada, Washington

Some might consider the residual income to be a deterrent, but I feel just the opposite.  With other loans as soon as you go over a certain DTI then the loan can be denied on the spot, but with VA that sometimes is not the case.  It gives the Veteran an additional outlet for approval which is especially nice during these hard economic times.

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: residual income, VA Loan

This entry was posted on Monday, November 9th, 2009 at 7:10 AM and is filed under Uncategorized, VA Cashout Refinance, VA Purchase, VA Refinance. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.