VA Loan requirements and eligibility begin with having served in the military. An extensive description of these VA loan requirements can be found on our eligibility page. This article describes the additional income requirements needed to obtain a VA loan, such as:
No Income Threshold Requirements
Designed to be a well-deserved safety net for the men and women of our armed forces, homebuyers using VA Loans aren’t required to reach any kind of income threshold to use the loan benefits.
However, in order for the agreement to make sense to the lender, the borrower is expected to have a stable, reliable income that is sufficient to cover foreseen monthly expenses, like mortgage payments.
Residual Income Requirement
Furthermore, the VA needs proof of income left over each month once necessary expenses are covered. The excess is needed to cover expected costs, like food, transportation, and other residual income requirements.
Residual Income Requirements Reduces the Foreclosure Rate
It is because of this that the VA Loan maintains one of the lowest foreclosure rates within all lending options today. The VA argues that mandating a residual income requirement increases veterans’ ability to earn income that meets all financial obligations – thereby creating an emergency fund when the time comes.
Calculating Residual Income
In terms of personal finance, residual income is the level of income an individual has after the deduction of all personal debts and expenses have been paid. The residual income calculation occurs monthly after paying all monthly debts. It is essentially the money leftover at the end of the month.
Monthly Income – Monthly Debts = Residual IncomeTo qualify for a VA home loan, this residual income number must exist. Simply put, you must make more money than you spend each month.
A Perfect Credit Score Is Not Necessary
The VA does not set a minimum credit score requirement; however, lenders will review your credit score from three different credit agencies. Our Home Loan Expert Specialists look at not only the scores but past credit patterns to determine qualification.
Review of the Debt-to-Income Ratio
Along with credit scores and historical patterns, the debt-to-income ratio is also reviewed by a lending specialist. A person’s debt-to-income ratio is calculated by dividing significant monthly debts by the gross monthly income. Consider the following example:
Salary Earned: $40,800
Gross Monthly Income = $40,800 \ 12 months
Gross Monthly Income = $3,400
Debts include:
- $200 car loan
- $700 mortgage
- $400 credit card debt
Debts Total: $1,300
The Debt-to-Income Ratio = $1,300 / $3,400 = ~38%
There is no exact ratio requirement when it comes to qualifying for a VA loan. The debt-to-income ratio is simply another factor used to determine qualification when reviewed with all other factors. Typically speaking, a percentage of 41% or lower, is seen positively.
Other Factors That May Affect Your VA Qualification
- Late Mortgage Payments
- No Credit History
- Chapter 7 or Chapter 13 Bankruptcy
- Federal Debts
- Foreclosures
Get approved for your VA loan now
