The Importance of Residual Income for VA Loan Eligibility

If you're a veteran or active military member looking to purchase a home, a VA loan may be a great option for you. One of the key factors that the VA looks at when determining loan eligibility is residual income. In this blog post, we'll take a closer look at residual income, the different things that go into calculating it, and why it's so important for VA loan eligibility.

What is Residual Income?

Residual income is the amount of money that an individual has left over after all of their expenses have been paid. It's used to determine if a borrower has enough money left over to cover their mortgage payments and other living expenses. The VA uses residual income as a way to ensure that borrowers are able to afford their mortgage payments and that they're not overextending themselves financially.

Tax Costs

One of the things that goes into calculating residual income is tax costs. This includes things like income taxes, both state and federal that the borrower is responsible for paying. These costs can vary depending on the location of the property and the borrower's income level.

Liabilities

Another thing that goes into calculating residual income is liabilities. Liabilities include things like credit card debt, car loans, student loans, and any other debts that the borrower is responsible for paying. The VA takes into account the borrower's total liabilities when determining residual income to ensure that they're not overextending themselves financially.

Maintenance

Maintenance costs are also taken into account when calculating residual income. These costs include things like repairs, landscaping, and any other costs associated with maintaining the property. The VA wants to ensure that borrowers have enough money left over to cover these costs and that they're not putting themselves in a financial bind. This is generally calculated by taking the total square footage of the property and multiplying it by 14 percent.

Child Support

Child support is also taken into account when calculating residual income. The VA understands that borrowers with children may have additional expenses, and they want to ensure that borrowers have enough money left over to cover these expenses and that they're not putting themselves in a financial bind.

In conclusion, residual income is an important factor for VA loan eligibility. The VA uses residual income to ensure that borrowers are able to afford their mortgage payments and that they're not overextending themselves financially. Tax costs, liabilities, maintenance, and child support are all things that go into calculating residual income. It's always a good idea to speak with a mortgage professional to understand the residual income requirements for a VA loan and to ensure that you're in a good financial position to qualify for a VA loan.