"What Is Residual Income on a VA Loan, and How Do I Know Where I Stand?"

Two readers can pick up the same VA loan file and reach for different numbers first. You reach for your debt-to-income ratio, because every calculator hands it to you, and the one you ran last night came back higher than you hoped. The underwriter reaches for a line near the bottom of VA Form 26-6393, the Loan Analysis, labeled "balance available for family support." That line is your residual income, and VA tells the underwriter it comes before your ratio.

Residual income on a VA loan is the money left over each month after your new mortgage payment, your other debts, your taxes and a maintenance and utility allowance for the home are subtracted from your income. VA compares that figure to a table set by family size, loan amount and region, and it tells the underwriter the figure ranks ahead of your debt-to-income ratio.

I'm Jeff Moran, a mortgage broker in Bluffton, South Carolina, originating since 1996, licensed in fifteen states, NMLS #483943, through C2 Financial Corporation. I work in a military town, between Parris Island, MCAS Beaufort and the Naval Hospital.

How does VA calculate residual income?

The arithmetic lives on VA Form 26-6393, and the instructions are in VA Pamphlet 26-7, Chapter 4, Topic 9, revised February 22, 2019. The handbook defines residual income as "the amount of net income remaining (after deduction of debts and obligations and monthly shelter expenses) to cover family living expenses." The lender starts with your income, takes out four things, and looks at what is left.

Your income, counted the way VA counts it. Only verified income goes in. Non-taxable pay such as BAH, BAS or VA disability compensation can be grossed up for the debt-to-income ratio, meaning it is counted above face value because no tax comes out of it. The handbook limits that: tax-free income "may be 'grossed up' for purposes of calculating the debt-to-income ratio only." For residual income, that pay goes in at the amount you receive. How BAH and BAS work on a mortgage and how VA disability and survivor benefits count as income cover both in detail.

Your taxes. Residual income is a net figure, so the taxes that come out of your pay come out here too. The lender enters your estimated monthly federal income tax from the IRS tables.

Your full housing payment, plus an allowance for upkeep. The housing line carries principal and interest, property taxes at the higher amount if an increase is expected, insurance, flood insurance where it applies, and HOA dues. Maintenance and utilities get figured at 14 cents per square foot of living area from the appraisal, and the handbook's own example is a 1,500 square foot home carrying $210 a month. You will never write a check for it, and it still comes out of your residual.

Your debts and obligations. The lender lists every installment loan and every revolving minimum, and child support you pay goes on this line as a debt. The form also carries a separate line for job-related expenses, and child care for children up to age 12 belongs there. That line comes out of your residual income too. Unpaid non-medical collections are included under Chapter 4, Topic 7, revised August 24, 2026: at the minimum payment if the credit report shows one, and otherwise at 5 percent of the balance divided by 12. Identifiable medical collections may be disregarded.

Subtract all four from your income, and the number left over is your residual income. On the form it is item 43.

The table: family size, loan size and region

The guideline figures are in Topic 9 as two tables, one for loan amounts under $80,000 and one for $80,000 and above. Each runs down by family size from one to five, with a flat add-on for each additional member up to a family of seven, and across by four regions: Northeast, Midwest, South and West. South Carolina is in the South.

I am leaving the dollar amounts off this page on purpose. They get revised, and the lender runs the worksheet with your own figures against the table in force when you apply.

Family size is counted, and it can be adjusted. Everyone in the household counts, including a spouse who is not on the loan and anyone who depends on you for support. The handbook also lets the lender leave out anyone fully supported by verified income that is not being counted on the loan. Its own examples are a spouse who is not on the loan and has stable income of their own, and a child for whom foster care payments or child support arrives regularly. How foster care payments are read on a mortgage covers that piece.

Active duty and retired service members get a reduction. The handbook lowers the table figure by 5 percent when you are an active duty or retired service member, or when you will clearly benefit from military facilities near the home.

How does residual income work with DTI and credit on a VA loan?

Topic 10 of the same chapter, revised February 22, 2019, is where the three numbers get read together.

Your residual income figure gets read alongside everything else, and a figure that falls short can turn the file down on its own. Topic 10 puts it this way: "VA's minimum residual incomes (balance available for family support) are a guide. They should not automatically trigger approval or rejection of a loan. Instead, consider residual income in conjunction with all other credit factors. However, an inadequate residual income alone can be a basis for disapproving a loan."

Your debt ratio comes second. Topic 10 calls it "a guide and, as an underwriting factor, it is secondary to the residual income." A ratio over 41 percent gets what VA calls "close scrutiny," and the file can go forward in one of two ways. If your residual income is at least 20 percent above the table line, the "120 percent of residual" you may have heard about, that cushion carries it. Otherwise it needs a written statement from the underwriter's supervisor giving the reasons for approval and the compensating factors, meaning the strengths in your file that make up for the weak spot. Debt-to-income explained covers the ratio itself.

A weak residual figure sends the underwriter to your credit, and weak credit sends the underwriter to your residual figure. If your residual income is marginal, the underwriter looks at your credit history, and in particular at whether and how you have handled a similar housing payment before. If your credit is marginal, the underwriter looks at your residual income. Weak credit can still turn the file down by itself, in VA's words: "A poor credit history alone is a basis for disapproving a loan." VA itself sets no minimum credit score, though the lender you work with may have its own floor.

Compensating factors have to be real strengths. Having enough money to close, or meeting the residual income guideline, does not count as one. The strength also has to fit the weak spot. In VA's example, "Significant liquid assets may compensate for a residual income shortfall whereas long-term employment would not." So savings left after closing help a thin residual figure, and a long job history does not. None of them can make up for unsatisfactory credit.

Working out roughly where your own file stands

You can get close at your own kitchen table in an evening.

1. Your verified monthly income, at face value. Base pay, BAH, BAS, VA disability compensation, and a spouse's salary if the spouse will be on the loan. You leave the gross-up out here, because residual income is figured on the dollars that arrive.
2. Your taxes. Your LES or pay stub shows the withholding, and that is a fair working estimate.
3. The full housing payment for the home you are considering. Principal and interest, property taxes at what you will pay rather than what the seller pays, insurance and HOA dues. You can price your own scenario on the site.
4. The upkeep line. Fourteen cents for every square foot of living area, so a 2,000 square foot home adds $280 a month.
5. Every monthly debt as it will read on a credit report, plus child support you pay, and then child care for children up to age 12 on its own line. The Debt Ratio tool adds the debts up the way an underwriter would.
6. The subtraction and the comparison. Income, less taxes, less housing and upkeep, less debts and child care. You then compare the result to the table line for your family size, region and loan amount, which is the guideline the underwriter uses. You also compare it to that line plus 20 percent, the cushion that lets a ratio over 41 go forward on its own.

The lender's worksheet will differ from yours, because the lender verifies each figure. Your own worksheet still shows you whether you are comfortably above the table line and the cushion, close to the line, or short of it. It also shows which of the four lines is worth working on before you apply.

Preparing the strongest file

The debt line is the one you control most directly. A car loan with a $400 payment that gets paid off takes $400 out of the subtraction and puts that same $400 back on item 43 every month. Residual income is figured in actual dollars rather than as a percentage, so the payoff shows up in full.

Your household count should be accurate in both directions. A spouse who is not on the loan and has verified income of their own can be left out of family size. Someone who depends on you and is not on your tax return still counts.

When you're ready, please provide your most recent Leave and Earnings Statement, or your most recent 30 days of pay stubs with year-to-date figures, please, and your W-2s for the past two years. If you receive VA disability compensation, we will also need your current award letter. For your bank accounts, please provide the most recent two months of statements, all pages, even if the last page is intentionally left blank.

Mistakes that cost veterans on this test

Grossing up the non-taxable pay on the residual side. BAH, BAS and disability compensation get grossed up for the ratio and counted at face value for residual income.

Treating 41 percent as a wall. The handbook calls the ratio a guide and ranks it behind residual income, and it describes how a file over 41 gets approved.

An example, with invented numbers

Numbers below are made up to show the mechanism, and none of them is a quote. The table line itself is left out on purpose, because it gets revised.

A veteran and spouse, both on the loan, with two children, are buying a 2,000 square foot home in South Carolina. Both earn a salary, and the veteran also receives VA disability compensation.

Line	Monthly
Veteran's salary	$5,200
VA disability compensation, at face value	$1,200
Spouse's salary	$3,400
Income counted for residual	$9,800
Less estimated taxes on the taxable pay	($2,000)
Less housing payment: principal, interest, taxes, insurance, HOA	($3,440)
Less maintenance and utilities, 2,000 square feet at 14 cents	($280)
Less car payment, student loans and card minimums	($760)
Residual income, item 43	$3,320

The debt ratio reads differently. The disability compensation is grossed up to $1,500, so the income for the ratio is $10,100, and the debts for the ratio are the housing payment plus the monthly debts, $4,200. That is about 41.6 percent, over the 41 percent line. The upkeep line is not part of the ratio.

On the table in force as I write this, a residual income of $3,320 for a family of four in the South clears the line by far more than 20 percent. So the ratio over 41 does not require the supervisor's statement.

If the $450 car payment is paid off before application, the residual income rises to $3,770 and the ratio falls to about 37 percent.

Your next step on a VA purchase

You can run your numbers first, with no credit pull, no account and nobody calling you. The VA loan page covers entitlement, no down payment and no monthly mortgage insurance. The VA funding fee explains the one cost unique to the program. Once you see pricing for your own scenario, you choose a rate option that works best for you, and that selection can change later.

You are also welcome to call me and walk through your own worksheet before you write an offer.

Nothing here is a loan approval, a denial, a commitment to lend, or legal advice. VA Pamphlet 26-7 is the authority, and the residual income tables in it are revised from time to time. No letter from anyone is a loan commitment, and final approval depends on the property, the appraisal and full underwriting.

Common questions

What is residual income on a VA loan?

Residual income is the money left over each month after your new housing payment, your other monthly debts, your estimated taxes and a maintenance and utility allowance for the home are subtracted from your verified income. VA compares that figure to a table organized by family size, loan amount and region, and tells the underwriter it ranks ahead of the debt-to-income ratio.

How much residual income do I need for a VA loan?

The required figure comes from a table in VA Pamphlet 26-7, Chapter 4, Topic 9. It depends on how many members are in your household, which of the table's two loan-amount bands your loan falls in, and which of four regions the home is in. The handbook calls the table a guide rather than an automatic cutoff, and the amounts in it change over time, so your lender runs the worksheet with your actual numbers.

Is residual income more important than DTI on a VA loan?

Yes. VA Pamphlet 26-7, Chapter 4, Topic 10 says the debt-to-income ratio "is a guide and, as an underwriting factor, it is secondary to the residual income." It also says an inadequate residual income alone can be a basis for disapproving a loan. Both numbers are still read together with your credit history, and neither one is meant to approve or reject a file by itself.

Can I get a VA loan with a debt-to-income ratio over 41 percent?

The handbook describes exactly that file. A ratio over 41 percent requires close scrutiny. It can be approved when your residual income exceeds the table guideline by at least 20 percent, or with a written statement from the underwriter's supervisor giving the reasons and listing the compensating factors.