VA Mortgage: Debt Ratio & Residual Income Requirements

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In June of 1944 the Veterans Administration introduced the VA home mortgage program for veterans returning from war overseas.  Over the years the program has been modified to allow many veterans the opportunity to buy a home at affordable rates without the need for paying money down at purchase.

Available to Wide Range of People

As the name implies, the loan is mainly designed for people that have served in the military.  However, it is not restricted to only war-time service.  Illinois Veterans that have served during times of peace, as well as members of the reserve or National Guard may also qualify if they meet the service period requirements.  Within the past few years the rules were changed to allow the Veterans spouse to qualify for a home loan.

2nd Most Important Criteria:  the debt ratio

Besides meeting the military service requirements an Illinois Veterans mortgage applicant will also need to meet the debt ratio requirement.  This ratio is 41%.  It is very rare that a veteran will get approved for a home loan if their debt to income ratio is higher than 41%.  Therefore, it is important that potential IL VA mortgage applicants understand how it is calculated.

Gross, not Net

First and foremost, the debt ratio calculation uses the veteran’s gross income.  This is the income that a person earns before taxes, insurance, retirement savings and any other deduction is removed.  It is also calculated on a monthly basis. 

For example, if a veteran has a job that pays him $15 per hour and he works 40 hours per week then the person earns $600 per week ($15 x 40 = $600).  Since there are 52 weeks in a year the veteran is considered to earn $31,200 annually ($600 x 52 = $31,200).  Finally, the $31,200 is divided by 12 to come up with $2,600 per month gross income.

Debt, not Utilities 

After determining the veteran’s gross monthly income the mortgage lender will look at the existing debt.  All debts that have a monthly payment will be considered part of the calculation.  This includes car loans, credit cards, student loans, and any unsecured debt.  Items like utility bills are not factored in to the calculation.

So, for example, suppose a veteran had the following debts:

·         Automobile loan - $289 per month

·         Credit cards  -  $76 per month

·         Unsecured loan  -  $115

Total debt payment per month = $480

Using the earlier example of $2,600 monthly income then 41% of the $2,600 is $1066.  This would mean that the veteran could possibly qualify for a mortgage with a monthly payment of $586 ($1,066 income minus $480 debt = $586 left for mortgage payment).

Obviously, these are example numbers.  Your exact numbers will likely be different.

Another Requirement: Residual Income

Along with the service period restrictions and the debt to income ratio there is another crucial requirement for VA mortgages; the residual income factor.  Basically, this means that the veteran should have some money left over after accounting for all debt and the mortgage payment.  This requirement, along with the debt to income ratio, has been one of the main reasons why VA mortgages have such a low rate of default. 

For Illinois Veterans here are the guidelines for residual income based on size of family:

·         Family of 1 person:  $441

·         Family of 2 people:  $738

·         Family of 3 people:  $889

·         Family of 4 people:  $1,003

·         Family of 5 people:  $1,039

·         Family of 6 people: $1,119

·         Family of 7 people:  $1,199


If you are an Illinois Veteran that meets the service requirements, the debt ratio and the residual income test you could be a candidate for a VA mortgage.  With rates so low this is a great time to consider buying a home and establishing your part of the American Dream.

Related VA Mortgage Resources:

VA Loan Preapproval Process - Anita Clark
VA Loans: 3 Well Deserved Benefits For Veterans - Loans101
5 Ways that VA Mortgages Trump Other Kinds of Loans 
VA Joint Loan Options
VA Loans: The Ins and Outs of How to Acquire One

Comments (11)

Michael Ha Elmhurst
Rego Park, Forest Hills, Jackson Heights, Corona, Middle Village - Elmhurst, NY
Woodside, Maspeth

It's always nice to know the RE practices and rules in other states. . Even in one state, each county would have different price ranges. Informative post.

Nov 10, 2014 10:42 AM
Joan Whitebook
BHG The Masiello Group - Nashua, NH
Consumer Focused Real Estate Services

The VA loans are popular with vets.  Too bad that the VA won't let the veteran pa any portion of the buyer broker fee.  FHA dropped this prohibition years ago and conventional loans never had such a prohibition.  It deprives the veteran the ablity to have a buyer agent in some markets. such as in NH>

Nov 10, 2014 11:26 AM
MadisonMortgageGuys .com
MadisonMortgageGuys - Oconomowoc, WI
Your local mortgage company serving 47 states!

Absolutely Michael Ha Elmhurst, thanks for the comment. Although I did gear this towards Illinois Veterans, for the most part, these guides would apply anywhere. The only regional guideline that would need to be checked for other states is the residual income requirement. You can view other states residual income requirements here (Note this is a PDF document):

Joan Whitebook, I don't run into buyer paid representation often with the VA loans I have done (although I'm sure they're out there). In most instances, the seller is paying the buyers agent. It will be interesting to see if the VA ever changes that rule in the future!

Nov 10, 2014 11:37 AM
Anita Clark
Coldwell Banker Access Realty ~ 478.960.8055 - Warner Robins, GA
Realtor - Homes for Sale in Warner Robins GA

David: This is excellent information that all active duty and veterans need to see. Knowing all their options and the rules that govern the VA Loan process will help them as they prepare to buy.

Nov 10, 2014 07:44 PM
Fred Cope
Reliant Realty in Nashville, TN - Nashville, TN
Looking For Homes With A Smile

David, well thought out and clearly presented post.  Congrats.


David, I am a Veteran, and I was a MLO for 25 years in Nashville, TN.  I financed my home with a VA loan, so I have been on both sides of the loan, and I believe it is one of the best benefits GI's receive.  As a REALTOR®, I pre-qualify my clients for several reasons, but on VA Guaranty Loans, I start with w-2 & paystub to get a fix on Residual Income because many Loan Officers forget to check Residual.  Underwriters do not forget.  It is very important.


Thanks for a timely post well presented.


To all VETS on Veterans Day:  Thank you for your service!

Nov 10, 2014 08:20 PM
Andrew Mooers | 207.532.6573
Northern Maine Real Estate-Aroostook County Broker

Boy I love these blog posts you can get your teeth into and really glean, learn and share. The link to them helps the buyers understand the why, how it works. VA loans, the least we can provide the valuable Veteran! We owe them so much more!

Nov 11, 2014 12:00 AM
MadisonMortgageGuys .com
MadisonMortgageGuys - Oconomowoc, WI
Your local mortgage company serving 47 states!

Anita Clark, I couldn't agree more. Thanks again for the great resource link!


Fred Cope, thanks so much for the comp. First off, Happy Veterans Day sir and thank you for your service! Veterans deserve every benefit they get and I agree, the VA mortgage is among the top benefits. Smart man starting with the residual income check. If that's not met, there's no point to go much further, at least in terms of a VA mortgage. You're right, underwriters absolutely will not forget to check. Thanks again for your service, hope you have a wonderful Veterans day!


Thank you Andrew Mooers, and yes, we sure do owe them so much more. I appreciate the comp on the post and just hope to shed some light on the subject!


Nov 11, 2014 03:51 AM
Kevin A. Guttman-Author, ReverseMortgageSpecialist
NMLS #384936 - Colorado Springs, CO

Good info David.

VA loans are a great benefit!

Nov 11, 2014 04:04 AM
MadisonMortgageGuys .com
MadisonMortgageGuys - Oconomowoc, WI
Your local mortgage company serving 47 states!

Thanks Kevin Guttman, I appreciate that. No doubt on the benefits of a VA mortgage!

Nov 11, 2014 04:57 AM
Praful Thakkar
LAER Realty Partners - Andover, MA
Andover, MA: Andover Luxury Homes For Sale

David Leonard - timely post on Veteran's day. And informative for sure. (We somehow stay away from such things - but it is very important for us to know this.)

Nov 11, 2014 11:06 AM
MadisonMortgageGuys .com
MadisonMortgageGuys - Oconomowoc, WI
Your local mortgage company serving 47 states!

Ha, no doubt Praful Thakkar! Thanks for the compliment as well. The VA mortgage has a few extra layers of qualification that the other programs don't. It's those fine details that are nice to know so that we can better serve our Veterans. I'm a huge fan of the VA mortgage!

Nov 11, 2014 11:59 AM