All of these items will be deducted from the total income to determine the net income remaining to support the veteran’s family. The amount required will vary based on the household size, and where in the country the veteran lives. Here’s an example of what that requirement looks like in the southern region of the United States.
Family Size of 1 - $441
Family Size of 2 - $738
Family Size of 3 - $889
Family Size of 4 - $1,003
Family Size of 5 - $1,039
Over 5 - add $80 per family member up to 7
If you live in a different region of the country these numbers will vary (they also change), but these charts are available online to anyone interested in reviewing them. It’s important to understand who must be included in the veterans household size. All household members must be included in the household size regardless of relationship type. If a person is listed as a dependent on your tax return they must be considered a member of your household.
There are instances where a household member can be omitted. This is typically when a source of income exists to fully support the dependent that is not included in the veterans loan application.
Examples of this are a child from a spouse’s previous marriage for which adequate child support is received. Another example is a spouse who is not on the loan application, but works a full-time job and has adequate income to support themselves. You could also omit a dependent parent who has adequate income from disability, social security, and/or pension income.
It should also be noted that the residual income requirement is impacted by your debt to income ratio. The VA likes for veterans to have a debt to income ratio of 41% or lower. In the event that your debt to income ratio exceeds that, you will not be automatically disqualified from financing. Rather you will simply be required to exceed the residual income requirement for your household size by 20%.
Because of this insightful way of looking at debt and income the VA has helped lenders make home financing more available to veterans who might otherwise not qualify. I’ve closed VA loans for veterans who had debt to income ratios well into the 60s, all because they had sufficient residual income.
You might also be surprised to find that despite what some would consider a more liberal way of evaluating debt and income, VA loans historically have the lowest default rates.
Now that we understand what residual income is and the impact it can play in determining whether or not you qualify, you may be asking how do I know what my debt to income ratio is. So be sure to check out my video “how to your calculate debt to income ratio” where I’ll walk you through how lenders calculate this step by step.