VA Home Loan Income Requirements

Although VA loans are one of the most economical loan programs for first-time home buyers, be it in Texas, Florida, or elsewhere, they have certain income requirements. The VA has put these requirements in place to check if you can afford the house you’re proposing to own. As far as affordability is concerned, VA lenders measure it on the basis of your debt-to-income ratio. Let’s take a look at the income requirements in detail.

Full-time and Part-time Qualifying Income

The most important qualifying criteria is that your income must be verified as being full-time, which means you must be working at least 30 hours per week. Applicants can also use part-time income to apply for VA loans; however, the income must have a history of at least two years, and the VA lender must determine that it is likely to continue.

Non-Qualifying Income

VA lenders accept income from multiple income sources, but not all. For instance, the VA does not accept income from gambling or lottery winnings. You may not be able to use unemployment compensation, performance bonuses, or any sort of isolated payment from your employer to apply for a VA loan.

Other Requirements

It’s also essential for first time home buyers to learn that all types of income, such as from dividends, interest, retirement or pension, must pass a financial litmus test, wherein it’s determined that the applicant has been receiving the income for the past 2 years. In addition, it must be determined that the income from the sources is expected to continue for at least 3 more years. If you’re self-employed, the VA will measure your qualifying income from your latest federal income tax returns. In such a scenario, your income must have a minimum two-years history.

Income Limitations

One of the most wonderful elements of a VA loan is that, unlike Conventional loans, it has no limitations on your income. That means whether you’re earning $1,00,000 or $1,000 per month, the VA will use the same formula - debt-to-income ratio - to ascertain if you qualify for the loan. Even other government-guaranteed home loan programs such as the USDA set a limit on the applicant's income.

Residual Income Limitations

Your residual income is the income left after you’ve settled all your liabilities and personal expenses, including the mortgage loan, property taxes, and insurance. The VA lender may also count other debts such as monthly child support and spousal payments, but not food, utilities, and entertainment, when calculating residual income.

As far as the residual income limitations are concerned, the figure varies from applicant to applicant, as it depends on numerous factors, including the total number of members in the household, the region, and, of course, the mortgage amount. Let’s suppose the VA loan amount for an applicant is $80,000. The residual income in different regions as per the family size would be:

Table of Residual Incomes by Region for loan amounts of $80,000 and above

Family Size

Northeast

Midwest

South

West

1

$450

$441

$441

$491

2

$755

$738

$738

$823

3

$909

$889

$889

$990

4

$1,025

$1,003

$1,003

$1,117

5

$1,062

$1,039

$1,039

$1,158

6

$1,142

$1,119

$1,119

$1,238

7

$1,222

$1,199

$1,199

$1,318

Relation Between Residual Income and Debt-to-Income Ratio

Though the above chart is a good guide, there is another factor that affects residual income requirements. If the debt-to-income ratio (DTI) of the borrower is more than 41 percent, then the residual income requirement increases by 20 percent. So for example, if the DTI ratio of a family of four in the South region is 45 percent, the residual income requirement escalates from $1,003 to $1,204.

Conclusion

In addition to the above requirements, as a first-time home buyer in Texas or any other state, you must know that VA lenders don’t count the income of any non-borrowing co-borrower (not living in the house) when you apply for a VA loan. Our experienced loan officers can give you an insight into all such and other requirements and clear all doubts you may have relating to a VA loans. The Davidson Group can assist you in steps such as negotiating closing costs, to make your VA house even more affordable.


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