The VA residual income is the money remaining each month after taxes, your mortgage payment, and other recurring monthly obligations are paid. The VA sets residual income standards for borrowers to ensure they can manage their normal living expenses after closing.
The thinking among many veterans is that once VA loan approval is secured, the challenging portion is completed. The truth is that loan approval does not guarantee ongoing affordability.
Lenders can approve a payment that falls within VA limits. Still, the payment itself may be higher than the average household can comfortably manage when added to property taxes, insurance, childcare, travel, utilities, and daily necessities.
This is the importance of VA residual income: the money left after all significant expenses have been paid, clarifying for both the lender and the potential buyer that the household can comfortably manage homeownership.
Once you understand VA residual income, you can avoid financial issues when purchasing a home. In turn, this can lead to buying a home you can be confident is perfect for you and your family. Here is what all DFW VA buyers must understand before making an offer on a home.
Key Takeaways:
- VA residual income is the amount of cash you have left after expenses are paid for the month. This is calculated on a post-tax, post-housing-expense basis. The remainder will cover your mortgage, property taxes, insurance, and all of your other necessary bills.
- The VA considers residual income and the VA debt-to-income ratio (DTI) to determine how you are truly able to afford to buy the property.
- A buyer can be approved for a VA home loan with a DTI over 41% if they have good residual income and/or other compensating factors.
- Texas is in the VA loan South region, which has different minimum residual income levels based on household size.
- Your mortgage, property taxes, insurance, and every other bill that you need to pay are taken out of your total income.
- A mortgage payment that looks Affordable on paper can be very uncomfortable when your residual income is too low.
- Knowing the VA residual income levels in Texas helps vets prevent financial hardship when buying a home.
- The idea is not to qualify for a VA home loan, but rather to ensure you can truly afford to live in your house today and in the years to come.
Expert Insight for DFW VA Buyers
Having helped veterans purchase homes throughout DFW, we have seen buyers obtain homes that would seem affordable on paper. Yet after the purchase, they would struggle because they never considered: daycare, gas (long commutes), HOAs, skyrocketing insurance costs, etc. Reviewing what would really remain (residual income) before making an offer is much safer than only looking at the largest loan that pre-approves you.
What Does VA Residual Income Mean on a VA Loan?
To make sense of how the VA calculates affordability, it helps to know what “residual income” actually entails. Most programs factor your debt ratio heavily; however, the VA loan does not primarily consider it. This figure shows how much cash will remain in your wallet after primary expenses are covered.
What Is VA Residual Income in Plain English?
The VA residual income is the money you have left each month after your main obligations are paid off.
The VA calculates it to determine whether the borrower can cover day-to-day living expenses after paying their mortgage.
Essentially, it is your comfort cushion.
The VA needs to know that you will be able to cover your expenses, support your lifestyle, and still have cash left over for unexpected expenses.
That long-term aspect makes VA loans generally successful.
What Expenses Are Usually Subtracted Before Residual Income Is Measured?
Your gross monthly income is taken, and your lender will subtract your largest monthly obligations from it.
These often look like:
- Principal and Interest
- Taxes on the property
- Homeowners insurance
- HOA Fees
- Payments for a vehicle loan
- Credit Cards
- Student Loans
- Child support obligations
- Alimony payments
- Any other regular monthly obligation
- Federal Tax Payment amounts
- Social Security and Medicare Tax amounts
PITI stands for principal, interest, taxes, and insurance. PITI is often part of your monthly payment.
When PITI and the obligations listed above are removed, the remaining amount is the VA mortgage residual income.
Why isn’t the 41% VA DTI Benchmark the Whole Story?
Most of my buyers focus heavily on the DTI limits for VA loans. Even though the DTI remains a major qualifying requirement, it does not capture the borrower’s full financial picture. The VA wants to check residual income because a percentage alone does not tell us whether the borrower can cover their daily expenses.
Why Do Many Veterans Focus on DTI Instead of Residual Income?
Most borrowers are first introduced to DTI in the pre-approval stage, and it quickly becomes all about that one number. As a matter of fact, it is very common that a borrower can very simply achieve the normal VA DTI numbers. But when it comes to them living in the home, they still seem unable to make it.
This is because VA DTI reflects debt as a percentage of income. It is unable to reflect several day-to-day expenses that can strain a family budget after the transaction has been completed.
Most DFW VA buyers need to consider their everyday expenses when figuring out what a mortgage really costs. Daily costs like childcare, utility, and gas for commuting. Don’t forget that when home repairs break down, they also count as part of a buyer’s monthly expenses.
Which is why VA residual income is one of the most powerful indicators for long-term satisfaction.
What Does DTI Measure on a VA Loan?
The VA loan DTI calculates how much of your gross monthly income is spent on existing financial obligations. In this calculation, your housing costs, along with your other ongoing monthly bills, are totaled. Those costs are then directly compared to the money coming in each month.
For example:
- Gross income of $8,000
- Monthly obligations of $3,200
A debt-to-income ratio of 40% would result from these figures with a VA loan.
While DTI is valuable information, it only calculates how much money is left after paying monthly bills.
Can a DFW Buyer Qualify With a VA DTI Above 41%?
Yes. Most borrowers do get VA loan approval with a DTI above 41%.
The VA doesn’t always apply 41% rigidly as an absolute number.
Lenders can and will approve borrowers above the 41% threshold if other things balance it out. Some of these things are:
- Excellent VA residual income
- Great credit
- Good work history
- Amount of liquid assets/cash reserves
- History of predictable income
It can be much less of a risk to lend money to someone with a 45% DTI but a large residual income than to someone with a 38% DTI and little cash in their bank account.
Can a Buyer With a Low DTI Still Run Into Residual-Income Problems?
Yes, a low DTI does not guarantee a household is affordable.
The household may have:
- Low debt payment amounts
- High childcare costs
- More than one child, or one child with special needs
- High utility payments
- Long commutes
While the DTI may look good, those payment requirements will eat up available cash per month.
Residual income reveals those potential affordability issues.
What VA Residual Income Chart Applies to Dallas-Fort Worth Buyers?
The VA also sets minimum residual income requirements based on household size and location. A borrower can make use of these Texas regulations to understand precisely how a lender makes loan decisions. These may also explain why two borrowers with similar incomes receive different responses.
What Are The VA Residual Income Requirements For Texas?
Texas is under the VA’s South Region for residual income calculations. These are the VA’s minimum residual income requirements, which can be used to determine whether a borrower is financially able to afford the monthly ownership expenses associated with the mortgage and other obligations.
As of now, the current VA South Region residual income requirements for loan amounts of $80,000 and up are:
| Family Size | Minimum Residual Income |
| 1 | $441 |
| 2 | $738 |
| 3 | $889 |
| 4 | $1,003 |
| 5+ | Add $80 for each additional family member |
As an example, a veteran purchasing a house in Dallas for a household of four would generally require a minimum residual income of $1,003 to qualify for a loan after accounting for housing costs, taxes, and debts.
Please remember these minimums are a VA baseline, and not necessarily an acceptable comfort level for each family. Many DFW buyers will need considerably higher residual income depending on items such as childcare, commuting, HOA fees, utilities, and long-term savings goals.
Although hitting the VA minimum helps satisfy the underwriter, many buyers may want to ensure they have sufficient savings after the purchase is complete.
How VA Residual Income Works for a DFW Buyer?
VA residual income is the income left over after all major monthly expenses have been accounted for. This allows the lender to assess better whether a potential borrower has adequate funds to cover homeownership responsibilities post-closing.
Here’s an example calculation:
- Gross monthly income: $8,000
- Monthly obligations:
- PITI mortgage payment: $2,300
- Car payment: $450
- Student loan: $200
- Credit card payments: $150
- Taxes and payroll deductions: $1,100
- Residual income left: $3,800
With a family of four seeking homeownership in the Dallas-Fort Worth area, the VA minimum residual income is $1,003. In this example, the borrower’s remaining residual income far surpasses the minimum requirement.
This example should be taken as a simplified calculation, as lenders weigh each borrower’s situation, including household size, number of obligations, income history, and other items necessary for proper underwriting.
Why Do DFW Housing Costs Make Residual Income More Important?
In the Dallas-Fort Worth Metroplex, housing costs vary widely. The mortgage payment gets a lot of the attention, but several other costs affect affordability. Knowledge of these local costs can help veterans develop a more realistic budget before purchasing a home.
Why Does Affordability Vary So Much Across DFW?
The Dallas-Fort Worth housing market isn’t a market. Instead, it’s a mix of towns, suburbs, and neighborhoods with widely varying homeownership costs.
For example, differences are visible when a buyer considers the cost of:
- Property tax rates
- HOA dues
- Homeowner’s insurance
- Commuting distance
- Home size
- Utilities
Each DFW suburb has very different monthly expenses for a homeowner. This is true for even the most similar homes.
The amount of expense can fluctuate greatly in the VA purchase. A savvy VA buyer doesn’t just look at the house’s price tag. They examine the monthly cost of ownership.
How Can Texas Taxes Help and Hurt the Calculation?
There is no Texas state income tax.
This could reduce many borrowers’ monthly cash flow.
But the Texas property taxes tend to be among the highest in the nation.
When home prices around DFW begin to climb, property taxes make up a large share of a borrower’s monthly housing expenses.
Property taxes are a key part of how affordable a VA loan is.
How Do Property Taxes, Insurance, and HOA Dues Affect Residual Income?
Some borrowers only think of Principal & Interest.
The actual monthly payment often has:
- Taxes
- Homeowners insurance
- HOA fees
- Flood insurance, if applicable
Each additional payment will reduce the available cash you have left over from your housing expenses. This will lower your VA residual income DFW calculation.
How Can Childcare and Commuting Change the Real Affordability Picture?
The mortgage is not the only expense many military families encounter. Examples include:
- Childcare
- Daycare
- After-school programs
- Gas money
- Car repair
- Toll roads
These expenses are a huge drain on monthly finances. The amount of money available from the family is assessed by both the lender and the borrower using the residual income calculation.
Real Example: Why Two Buyers With the Same DTI May Receive Different Outcomes?
Let’s look at two DFW VA borrowers:
| Criteria | Buyer A | Buyer B |
|---|---|---|
| Household Income | $8,500/month | $8,500/month |
| Debt-to-Income (DTI) Ratio | 43% | 43% |
| Household Size | 2 people | 5 people |
| Reported Debts | Minimal debts to report | Two car notes |
| Children | No children | Has children |
| Child Care Costs | None | Ongoing child care expenses |
| Commute Distance | Close to work | Long commute across the Metroplex |
| Transportation Costs | Low | High due to daily toll road usage |
| Overall Monthly Obligations | Lower living and transportation expenses | Higher living and transportation expenses |
| Financial Flexibility | Greater disposable income after expenses | Less disposable income due to larger household and recurring costs |
The two borrowers look great on paper.
But Buyer A’s VA residual income may be far greater, as there are fewer competing household bills in the monthly budget.
That’s the main reason lenders do look past these simple percentages. It’s not just about closing the loan; it’s about the client feeling comfortable once they’ve moved in.
How Can DFW VA Buyers Strengthen Residual Income Before Making an Offer?
The most effective VA loan applications actually start well before a buyer even views properties or makes an offer. In fact, making minor adjustments to your financing can be a very easy way to enhance your residual income. By doing so, you’ll be more “affordable” overall. In the end, making these small adjustments can make underwriting that much smoother.
Pay Down Recurring Debts
One immediate benefit of increased residual income is the reduction of monthly outgoings. Concentrate on:
- Credit cards
- Car payments
- Personal loans
Avoid Taking on New Debt
Do not finance any large purchases before closing.
Additional debt obligations will affect the amount of funds you can afford and your ability to purchase.
Build Emergency Savings
Cash reserves are a great measure of a family’s financial health. Cash reserves give homeowners peace of mind, knowing they can cover unexpected costs.
Evaluate the Full Housing Payment
Look beyond principal and interest.
Review:
- Property taxes
- Homeowners insurance
- HOA dues
- Utilities
- Maintenance costs
Maintain Stable Employment
A stable job gives a steady income, which strengthens your loan profile.
Buy Based on Comfort, Not Maximum Approval
Your loan approval amount might be higher than you intend to purchase. The best purchase price is a price that facilitates:
- Saving
- Retirement planning
- Family requirements
- Freedom
Common VA Residual Income Mistakes DFW Buyers Make
One common reason for veteran buyers, however, is that they overfocus on loan approval rather than on whether it is Affordable in the long term. Among the frequent errors are:
Using The Full Pre-Approval Amount As The Budget
Knowing your highest approval amount doesn’t automatically mean you’ll feel comfortable with this payment in your household; in fact, most buyers would save and make smaller payments if buying below their approved amount.
Underestimating Texas Property Taxes
Texas property taxes can add hundreds more to a monthly mortgage payment, and home buyers often overlook this and focus on the purchase price and its impact on their disposable income.
Not Considering Home Owners Association Fees
Some areas within DFW can be substantial, and paying HOA dues will only take up the dollars you’ll have left to play with each month.
Not Considering Commuting Cost
Higher fuel consumption, toll roads, vehicle maintenance, and vehicle wear and tear will quickly consume any saved dollars you might have when doing this drive.
Ignoring Future Expenditures
Child care, rising insurance rates, home maintenance needs, and other financial needs down the road can change how you afford a home. Buyers should also consider their future needs.
Ginger Varga — Helping Veterans Make Smart Moves Across DFW
Annually, military families and veterans buy homes they’re comfortable owning and enjoying for many years. It often comes down to being able to see the full financial commitment before writing an offer.
VA residual income helps homebuyers estimate affordability beyond the approval process. It gives you a clearer picture of your actual living costs once you close. That’s because it takes into account mortgage, homeowner’s insurance, and property taxes. It even includes the smaller costs, like childcare, gas to get back and forth to work, and utility bills.
As a veteran Realtor in the Dallas-Fort Worth area, Ginger Varga assists her buyers in determining not only whether they qualify for a VA loan, but also whether the home will fit their budget in the long run. Reviewing taxes, insurance premiums, HOA dues, commute distances, and living expenses for each area before submitting an offer is one way she empowers her veterans.
In search of a home via VA? Contact Ginger today to create a home-buying plan using our dream home finder services.
Frequently Asked Questions
Ques: Does VA Disability Income Count Toward VA Loan Qualification?
Yes, VA disability benefits are considered qualifying income if they are stable and likely to continue. The majority of this income is nontaxable, which can significantly increase overall affordability. It can significantly help with a borrower’s VA DTI and VA residual income calculations.
Ques: Does BAH Or BAS Help Active-Duty Buyers Qualify For A VA Loan?
Yes, BAH and BAS usually do count as qualifying income for active-duty service members. When this allowance is factored in, the buyer’s overall buying power is greatly increased. This naturally feeds into the residual income calculation and many other key figures. It dramatically increases the loan applicant’s profile.
Ques: Can A Non-Borrowing Spouse Affect VA Residual Income In Texas?
Yes. In some cases, liabilities of a non-borrowing spouse may have an underwriting effect. The lender reviews all household liabilities. This is so that residual income may be sufficient after all required monthly expenses have been deducted.
Ques: Are Deferred Student Loans Ignored On A VA Loan?
No. Generally, a deferred student loan does count towards your eligibility. Although you don’t need to pay the student loan right now, lenders don’t ignore the debt. Most will calculate and include the debt as a normal part of your ability and fit under VA underwriting guidelines.
Ques: Can Seller Concessions Improve VA Residual Income?
These do not directly impact the residual income numbers. They will reduce the amount of out-of-pocket expenses at closing. Thus, improving your cash position and financial position post-purchase of the home.
Ques: Do Condos And Townhomes Change The Residual-Income Calculation?
The formula remains the same. One main difference is that condos and townhomes typically have HOA dues. That will raise the monthly housing costs. Higher housing costs would mean less disposable income each month.
Ques: Can Changing Jobs During The DFW Home Search Hurt VA Approval?
Maybe. Job changes will often cause an extra underwriter review and require more paperwork. They like to have a stable job for you to check your steady income and reduce uncertainty for them.
Ques: Should DFW VA Buyers Use The Full Amount They Are Pre-approved For?
It depends. Pre-approval will only state what you qualify to borrow, not what you can afford in the long term. Before determining the price of a home to purchase, consider your future cash flow relative to your expenses. Think about your costs of childcare, utilities, commuting, savings goals, and future needs.
