Considering a VA loan in Colorado Springs? In this post, we’ll explore the key benefits…
VA Loan Residual Income Explained
VA Residual Income: Colorado Springs Guide
Are you curious about how the Department of Veterans Affairs (VA) calculates your finances before granting a VA home loan? In this post, we’ll explain VA residual income and show you why it matters for homebuyers in Colorado Springs and throughout Colorado. We’ll also explore how 719 Lending can help you navigate this important requirement to secure the home of your dreams.
What You’ll Learn from the VA Residual Income Chart
- What VA residual income is and why it’s crucial for VA home loans
- How to calculate VA residual income
- The minimum residual income guidelines for different family sizes
- Why VA loans are so beneficial for Colorado Springs real estate purchases
- How 719 Lending can help you with your VA mortgage process
- Use this Calculator as a great resource
What Is VA Residual Income?
VA residual income is the amount of money left over each month after you pay your major expenses. These expenses usually include principal and interest on your mortgage, property taxes, homeowners insurance, and basic utilities, and are subtracted from your net income. The VA uses this leftover amount to ensure you can afford essentials like groceries, gas, and other daily living costs once you have made your monthly mortgage payment. The VA’s minimum residual income serves as a guideline to ensure financial stability rather than a strict criterion for loan approval.
Residual income is different from debt-to-income ratio (DTI). While DTI is an important measure of how much debt you carry compared to your gross monthly income, residual income focuses on how much cash remains after all major bills are paid. Because Colorado Springs living costs can differ from other parts of Colorado, calculating your monthly leftover funds accurately is key.
Why Does the VA Require Residual Income?
The VA wants to reduce the likelihood of borrowers defaulting on their mortgage. By making sure veterans and active-duty service members have enough money for everyday life after paying housing expenses, they lower the chance of financial hardship. This process supports long-term homeownership success and financial stability for you and your family.
Additionally, many mortgage professionals see residual income requirements as a consumer-friendly approach. The VA’s minimum residual income acts as a guideline for evaluating a borrower’s financial health by showing what remains after expenses. It protects veterans from purchasing a home they cannot comfortably afford. Therefore, if you’re looking to purchase real estate in Colorado Springs, meeting the VA’s residual income guidelines helps you buy a home with greater financial confidence.
How to Calculate Your Residual Income
Although the exact residual income calculation can vary, you generally follow these steps:
- Determine Your Gross Monthly IncomeAdd up all stable and reliable sources of income. For example, base salary, any military allowances, or regular bonuses.
- Subtract Your Major Expenses
- Principal, interest, taxes, and insurance (PITI) on your potential mortgage
- Homeowners association (HOA) dues, if applicable
- Basic utility costs, typically a set estimate determined by the VA
- Any other monthly debts (car payments, student loans, and credit card obligations)
- Check the ResultThe figure you’re left with is your estimated VA residual income. The VA then compares this amount against their guidelines, which can vary depending on where you live and how many dependents you have.
It’s wise to speak with a knowledgeable VA loan officer or mortgage broker—like the team at 719 Lending—to verify your numbers. They will help you gather the right documents, calculate your expenses, and confirm you meet the required threshold for Colorado or the specific region of Colorado Springs.
VA Residual Income Charts
Using Charts to Determine Requirements
VA residual income charts are a crucial tool for determining the residual income requirements for VA loans. These charts are divided into four regions: Northeast, Midwest, South, and West. Each region has its own set of residual income requirements, which vary based on the loan amount and family size.
To use the charts, borrowers need to first determine their geographic region and family size. Then, they can refer to the chart that corresponds to their loan amount (either below $80,000 or above $80,000). The chart will provide the minimum residual income requirement for their specific situation.
For example, a family of four living in the Midwest with a loan amount of $150,000 would need to refer to the chart for the Midwest region and a loan amount above $80,000. According to the chart, their minimum residual income requirement would be $1,003.
These charts are essential because they help ensure that borrowers have enough discretionary income left after paying their major expenses. By meeting the VA’s residual income requirements, you can demonstrate your ability to manage your finances effectively
VA Residual Income Chart: What Are The VA Residual Income Requirements?
A VA residual income chart shows the housing prices of where you’re purchasing your property, depending on the location and the number of members in your household. The chart also illustrates the income conditions that the VA requires, including residual income requirements for loans below $80,000.
Residual Income by Region for Loan Amounts of $79,999 and Below
| Family Size | Northeast | Midwest | South | West |
|---|---|---|---|---|
| 1 | $390 | $382 | $382 | $425 |
| 2 | $654 | $641 | $641 | $713 |
| 3 | $788 | $772 | $772 | $859 |
| 4 | $888 | $868 | $868 | $967 |
| 5 | $921 | $902 | $902 | $1004 |
| Over 5 | Add $75 for each additional member up to a family of seven. | |||
Residual Income by Region for Loan Amounts of $80,999 and Above
| Family Size | Northeast | Midwest | South | West |
|---|---|---|---|---|
| 1 | $450 | $441 | $441 | $491 |
| 2 | $755 | $738 | $738 | $823 |
| 3 | $909 | $889 | $889 | $990 |
| 4 | $1,025 | $1,003 | $1,003 | $1,117 |
| 5 | $1,062 | $1,039 | $1,039 | $1,158 |
| Over 5 | Add $80 for each additional member up to a family of seven. | |||
Key Geographic Regions for VA Residual Income Charts
| Region | States |
|---|---|
| Northeast | Connecticut, Maine, Massachusetts New Hampshire, New Jersey, New York, Pennsylvania, Rhode, Island, Vermont |
| Midwest | Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, South Dakota, Wisconsin |
| South | Alabama, Arkansas, Delaware, DC, Florida, Georgia, Kentucky, Louisiana, Maryland, Mississippi, North Carolina, Oklahoma, Puerto Rico, South Carolina, Tennessee, Texas, Virginia, West Virginia |
| West | Alaska, Arizona, California, Colorado, Hawaii, Idaho, Montana, Nevada, New Mexico, Oregon, Utah, Washington, Wyoming |
Debt-to-Income (DTI) Ratio
Understanding DTI Ratio for VA Loans
The debt-to-income (DTI) ratio is a critical factor in determining a borrower’s eligibility for a VA loan. The DTI ratio is calculated by dividing the borrower’s total monthly debt payments by their gross monthly income.
The VA generally recommends a DTI ratio of 41% or lower, including the mortgage payment. However, borrowers with a DTI ratio above 41% may still be eligible for a VA loan if they meet certain compensating factors, such as a high credit score or a low loan-to-value ratio.
It’s essential to note that the DTI ratio is not the only factor considered in the VA loan approval process. Lenders will also review the borrower’s credit history, income, and residual income to determine their overall creditworthiness. By maintaining a healthy DTI ratio, you can improve your chances of securing a VA loan and achieving your homeownership goals.
Residual Income vs. DTI
How Residual Income and DTI Interact
Residual income and DTI are two interconnected concepts in the VA loan approval process. While DTI measures the percentage of a borrower’s income that goes towards debt payments, residual income measures the amount of money left over after paying debts.
In general, a high DTI ratio can negatively impact a borrower’s residual income. This is because a larger portion of their income is going towards debt payments, leaving less money available for other expenses.
However, borrowers with a high DTI ratio may still be eligible for a VA loan if they have a high residual income. This is because the VA considers residual income as a secondary factor in determining loan eligibility.
For example, a borrower with a DTI ratio of 43% may still be eligible for a VA loan if their residual income exceeds the regional residual income requirement by at least 20%. This is because the borrower has demonstrated that they have sufficient income to cover their debt payments and still have money left over for other expenses.
Understanding how residual income and DTI interact can help you better prepare for the VA loan application process. By managing your debt and ensuring you have enough residual income, you can improve your chances of securing a VA loan and achieving your homeownership dreams.
VA Residual Income Guidelines
The VA home loan has a residual income chart that shows the minimum requirement based on your family size and your home’s location. Colorado Springs typically falls within the same guidelines as other parts of the Midwest/West region. Here’s a simplified look at how it might break down:
- 1-2 dependents: A specific monthly leftover requirement
- 3-4 dependents: A higher monthly leftover requirement
- 5 or more dependents: An even larger monthly leftover requirement
VA’s minimum residual income serves as a guideline to ensure borrowers have enough money left over after major expenses.
For a detailed chart, you can review the guidelines from the U.S. Department of Veterans Affairs. Keep in mind, these numbers can change over time. Checking the most recent requirements helps you stay up to date. Remember, 719 Lending is here to guide you through these calculations so you know exactly where you stand.
Exemptions and Exceptions
Situations Where Exemptions May Apply
In certain situations, lenders may exempt family members from the residual income calculation or adjust the family size to provide a more accurate measure of financial capacity. These exemptions are designed to ensure that the residual income calculation reflects the borrower’s true financial situation.
Some situations where exemptions may apply include:
- Family members with financial support from other sources, such as alimony or child support
- Family members with income from employment or self-employment that is not included in the borrower’s gross income
- Family members with financial obligations that reduce their disposable income, such as student loan payments or credit card debt
- Family members who are not financially dependent on the borrower, such as adult children who are financially independent
Lenders may also consider other factors when evaluating residual income, such as the borrower’s credit history, debt-to-income ratio, and overall financial stability. These exemptions and adjustments help create a more accurate picture of the borrower’s financial health, ensuring that the residual income calculation is fair and reflective of their actual financial situation.
VA Loan Approval Process
How Residual Income Is Evaluated
When evaluating a VA loan application, lenders will typically consider the borrower’s residual income as part of the overall approval process. Here’s how residual income is evaluated:
- Calculate Gross Monthly Income: The lender will calculate the borrower’s gross monthly income, including all sources of income.
- Subtract Monthly Debt Payments: The lender will then subtract the borrower’s monthly debt payments, including the proposed mortgage payment, from the gross monthly income.
- Determine Residual Income: The resulting amount is the borrower’s residual income, which is the amount of money left over each month after paying all debts.
- Compare to VA Guidelines: The lender will then compare the borrower’s residual income to the VA’s minimum residual income guidelines, which vary by region and family size.
- Approval Decision: If the borrower’s residual income meets or exceeds the VA’s minimum guidelines, the lender may consider the loan application approved. However, if the borrower’s residual income is below the VA’s minimum guidelines, the lender may consider other factors, such as the borrower’s credit history and debt-to-income ratio, to determine whether to approve the loan.
This thorough evaluation process ensures that borrowers have enough residual income to cover their living expenses and maintain financial stability, which is crucial for long-term homeownership success.
Consequences of Low Residual Income
Options for Borrowers
If a borrower’s residual income is below the VA’s minimum guidelines, it may be more difficult to qualify for a VA loan. However, there are options available to borrowers who are struggling to meet the residual income requirements.
Some options for borrowers with low residual income include:
- Consider a Smaller Loan Amount: Opting for a smaller loan amount or a longer loan term can reduce the monthly mortgage payment, making it easier to meet the residual income requirements.
- Provide Additional Documentation: Providing additional documentation to support the loan application, such as proof of income or assets, can help strengthen the case for loan approval.
- Work with Flexible Lenders: Some lenders may offer more flexible residual income guidelines, making it easier to qualify for a VA loan.
- Explore Alternative Loan Options: Borrowers can explore alternative loan options, such as an FHA loan or a conventional loan, which may have different residual income requirements.
- Seek Professional Assistance: Working with a mortgage broker or financial advisor can help borrowers navigate the loan process and identify potential solutions to improve their financial situation.
It’s worth noting that the VA’s residual income guidelines are in place to ensure that borrowers have enough money left over each month to cover their living expenses and avoid financial hardship. Borrowers who are struggling to meet the residual income requirements may want to consider seeking the assistance of a financial advisor or credit counselor to help improve their financial situation. By taking proactive steps, borrowers can enhance their financial health and increase their chances of securing a VA loan.
Benefits of VA Loans in Colorado Springs
You might be wondering why VA loans are so popular among service members and veterans in Colorado Springs. Here are a few top reasons:
- No Down Payment Needed: Qualified borrowers can often buy a home without making a down payment.
- No Private Mortgage Insurance (PMI): Unlike many other loan types, a VA loan typically does not require costly PMI.
- Competitive Interest Rates: The VA loan program often provides lower rates, helping borrowers save money over the life of the loan.
- Flexible Credit Requirements: The VA is often more forgiving of past credit issues when compared to traditional lenders.
Because of these perks, many Colorado Springs homebuyers see VA loans as a great path to homeownership. Even better, the focus on residual income means you have a financial cushion after covering your monthly mortgage payments, which benefits your overall quality of life in Colorado.
Steps to Secure a VA Loan with 719 Lending
Are you ready to explore your options? Here’s how you can work with 719 Lending to get started:
- Pre-Qualification
Talk to one of our mortgage professionals. We’ll discuss your income, expenses, and home-buying goals. We can also provide insight into your potential residual income to ensure you meet the VA guidelines. - Gather Documentation
You’ll likely need to present pay stubs, tax returns, and proof of military service. Don’t worry; our loan officers will give you a checklist of everything to compile. - Residency and Financial Check
Once we’ve reviewed your documents, we’ll confirm you meet the VA’s residual income standards and other requirements. - Home Search
With a pre-approval in hand, you can confidently look for Colorado Springs real estate that fits your budget. - Underwriting and Closing
We guide you step by step, from underwriting to the closing table. Our goal is to ensure a smooth experience so you can move into your new home with ease.
FAQ on VA Residual Income
1. What if I Don’t Meet the Residual Income Requirement?
You might improve your residual income by reducing your monthly debt or increasing your income. Consider paying down credit cards or consolidating debts. Sometimes, lowering the loan amount or choosing a property with lower taxes can also help.
2. Does the Number of Dependents Affect the Requirements?
Yes. The more dependents you have, the higher your monthly leftover requirement will be. This ensures your family has sufficient funds for day-to-day living.
3. Do I Need Perfect Credit to Get a VA Loan?
Not necessarily. The VA program often allows more flexibility in credit scores. However, you’ll still need to show responsible financial habits. Talk to our team at 719 Lending for personalized guidance.
External Resources
For more official guidance and deeper reading:
- VA Handbook
- Consumer Financial Protection Bureau – Offers articles on homebuying and mortgage best practices.
- U.S. Department of Veterans Affairs – The official VA page outlining home loan benefits.
- U.S. Department of Housing and Urban Development (HUD) – Provides broad information on homeownership and programs for buyers.
Ready to Get Started?
If you’re planning to buy in Colorado Springs or elsewhere in Colorado, understanding VA residual income is crucial. 719 Lending is here to help you make sense of the guidelines and walk you through the application process. We’re your go-to mortgage lender for VA loans, and our friendly team can’t wait to serve you.
Check out our Home Loan Options to explore what programs might work best for you. Or, contact us today to discuss your situation with an experienced loan officer.
By focusing on residual income, the VA ensures you can live comfortably in your new Colorado home. At 719 Lending, we believe buying a home should be a positive, empowering experience—especially for those who have served our country. Let us guide you every step of the way, so you can enjoy the benefits of homeownership with total peace of mind.
Remember: Always confirm the numbers and guidelines with an experienced VA-approved lender or the official VA website.
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