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Enter the appropriate residual income amount from the table in the "guidelines" box. Residual income is the amount of net income remaining (after deduction of debts, obligations and monthly shelter expenses) to cover family living expenses such as food, health care, clothing, and gasoline.

Item 45, Debt-to-Income Ratio

 

The ratio is determined by taking the sum of the principal and interest payment, homeowners’ and other assessments, (item 15, 16, 17, 18 and 21) and obligations to be deducted from income (item 41), divided by the total of gross salary or earnings (item 32) and other compensation or net income (item 39).

 

The ratio should be rounded to the nearest two digits and will be entered in item 45 of VA Form 26-6393

Residual Income

VA"s minimum residual income (balance available for family support) is a guide, and should not automatically trigger approval or rejection of a loan. Instead, consider residual income in conjunction with all other credit factors. An obviously inadequate residual income alone can be a basis for disapproving a loan.

 

Note: If residual income is marginal, look to other indicators such as the applicant's credit history, and in particular, whether and how the applicant has previously handled similar housing expense.

Debt-to-Income Ratio

VA's debt-to-income ratio is a ratio of total monthly debts' payments (housing expense, installment debts, etc.) to gross monthly income. It is a guide and, as an underwriting factor, it is secondary to the residual income. It should not automatically trigger approval or rejection of a loan. Instead, consider the ratio in conjunction with all other credit factors. A ratio greater than 41 percent requires close scrutiny, unless the ratio is greater than 41% solely due to the existence of tax-free income, OR residual income exceeds the guideline by at least 20 percent.

 

If a loan is closed on an automatic basis with a ratio greater than 41%, the file must contain a statement justifying the reasons for approval, signed by the underwriter’s supervisor, unless residual income exceeds the guideline by at least 20 percent. The statement must list the compensating factors justifying approval of the loan. (See Compensating Factors)