If you’ve spoken to someone about getting a VA loan and discussed debt to income ratio, you may have heard the term residual income thrown around. Residual income is the amount of money you have left over after your housing expenses, monthly debts, and utilities are paid.
Keep reading and I’ll show you exactly how it’s calculated and why it’s such an important factor when getting a VA loan.
Debt to income ratio is simply a measurement of how much debt you have versus how much income you have. If you haven’t seen my video on how to calculate it, be sure to check out my video on that very topic.
For most loan programs having a debt to income ratio that is too high is the difference between qualifying for a loan, and not qualifying. But for VA that’s not the case at all. While VA underwriters will take your debt to income ration into consideration, the VA puts a higher significance on your residual income.
The first step in calculating your residual income is determining what your proposed housing payment will be given the home you are attempting to purchase. This will be based on the parameters of the loan, as well as the taxes and insurance for the property. Also included in this amount is the monthly cost for any HOA dues for the property, regardless of whether they are paid monthly, bi-annually, or annually.
The following items will also be included when calculating your monthly obligations: