How Do You Calculate Residual Income?
Residual income is simply what’s left over after all your expenses are paid. To calculate that number, you simply subtract all the bills mentioned above that make up your DTI ratio.
The VA’s minimum residual income is considered a guide and should not trigger an approval or rejection of a VA loan on its own.
The Role Of DTI To Residual Income For VA Loans
Residual income and debt-to-income ratio are interconnected for VA loans, and are most often considered in conjunction with other credit factors. DTI and residual income are decidedly different, but they affect each other.
While it’s possible to qualify with a DTI that’s more than 41%, you must exceed the regional residual income requirement by at least 20%. So, if you have a family of four and live in Michigan, your regional residual requirement is $1,003. If your DTI is at 43%, you now must have a residual income of $1,203 to be approved for a VA loan.
Understanding your debt-to-income ratio and residual income balance can be difficult. That’s why it’s important to work with a mortgage lender who is experienced in dealing with VA loans.