When apply for a VA mortgage loan it is important to know the income guidelines to qualify for your home purchase. Most people already know the basics about no-down payment mortgage programs including the VA home loan, however it is important to understand how your income will be qualified as a military veteran.
VA loan income guidelines are similar to conventional mortgages and FHA loans however they add in one uncommon element called residual income. The residual income guideline can be a blessing and a curse for mortgage approval. Keep reading for details on how VA loan income is calculated.
VA Loan Income Qualification Example
The debt to income ratio (DTI) is calculated by dividing the monthly debt obligation by the gross monthly income. For example, we would start with calculating a borrower’s total Gross income (before taxes). A $24,000 per year salary divided by 12 months equals $2000 per month gross income (before taxes).
Next we would calculate the borrowers total debt obligations by adding their current monthly expenses. These expenses are those that report to the credit bureaus such as car loans, student loans, personal loans, credit cards and other mortgage payments. Let’s say for example these items total $200 per month. This is called the front end ratio.
Finally we add the expense of the new home being purchased to calculate the back end ratio or total debt to income (DTI). To be within the DTI guidelines for VA loans of 41%, the borrower could afford a house payment of $620/month including property taxes and home owners insurance. Here is the math:
- $24,000 Annual Income / 12 months = $2,000 Gross Monthly Income
- Total all currently monthly obligations to get the front end ratio ($200 for example)
- Calculate the total allowed housing expense ($2,000 x 41% = $820 total allow expenses)
- Subtract the current debts to find the total allowed housing expense ($820 – $200 = $620 per month allowed VA loan payment)
VA Loan Residual Income
When applying for a VA loan you will be asked several questions about all of your expenses including food, utilities and other loan payments. This is due to the fact the your loan officer is trying to help calculate your residual income which is the money left over after all bills are paid. The residual income is unique to VA loan which may be part of the reason why VA loan preform so well with on time payments even compared with conventional mortgages and A-Paper mortgage programs. The residual income guidelines require different minimum amounts for different regions of the United States. The borrower must meet the minimum requirement for money left over after all expenses or the loan will not be approved. Additionally the residual income guideline may help be a blessing as some lenders allow the standard DTI to be ignored if the residual income is at least 120% of the areas minimum residual income requirement.
Apply For A VA Loan
While VA loan rates remain low, it may be the perfect time to apply for a VA loan. If you’re a veteran or active member of the military, see what VA loans can do for you by calling the friendly, experts at Riverbank Finance today!
**NOTE: Riverbank Finance LLC is not a government organization nor affiliated with the Department of Veterans Affairs however they offer VA loan financing guaranteed through the Veterans Administration for current and prior military veterans.