How a VA Lender Counts Residual Income by Family Size and Region

The Quick Read: A VA lender counts residual income by taking the money left after taxes, the full housing payment and recurring debts, then comparing it with a monthly minimum set by three inputs: loan amount, number of people in the household, and the region of the property. The leftover cash is meant to cover everyday family costs. On a VA purchase file, residual income carries the most weight in the review, though the table minimum is a guide weighed with the rest of the file, not an automatic cutoff. Lendmire arranges these loans as a mortgage broker through wholesale lenders, and the sections below walk through the full calculation. Every program figure here is subject to lender guidelines and full file review.

What Is Residual Income on a VA Loan?

Residual income is the net income left each month after debts, obligations and housing costs, available for family living expenses. The VA Lenders Handbook says the lender enters the guideline figure on VA Form 26-6393, the Loan Analysis worksheet.

Think of it as the groceries, gas, utilities and clothing budget. Debt-to-income only compares one set of obligations with gross income. Residual income asks a more practical question: after the bills are paid, is there enough cash left for this size of family in this part of the country?

Across the wholesale programs Lendmire places VA loans with, residual income is the number that most often decides tight files. Strong income with a thin cushion can struggle. Modest income with low debts and a small household often does fine.

Here is how it differs from the other numbers on the file:

Key Terms Defined

Residual income: The monthly net income left after taxes, housing costs and recurring obligations.

Debt-to-income ratio (DTI): Monthly debts divided by gross monthly income, with 41% as the guideline figure.

Loan Analysis (VA Form 26-6393): The worksheet where the lender lays out income, debts and the residual income result.

Region: One of four geographic groups (Northeast, Midwest, South, West) that sets the cost-of-living adjustment in the table.

Compensating factors: Strengths on the file, such as stable employment history or savings, that a lender weighs when numbers are thin.

Entitlement: The amount of VA backing available to a veteran, which affects how much can be financed without a down payment.

What Three Inputs Pick the Number?

The minimum comes from a table, and three inputs choose the cell: the loan amount tier, the family size and the region of the property. The tiers split at $80,000, so loans of $79,999 and below use one table and loans of $80,000 and above use another.

Region follows the property, not where the borrower currently lives. Buying in one state while living in another uses the property’s region. Confirm the state-to-region key in the VA handbook itself when you check a specific state.

The table figures trace back to cost-of-living and spending data from the Bureau of Labor Statistics. VA said so in a 1997 Federal Register notice, which raised the tables 4% across the board after no increase since 1992. That notice described the increase as a one-time adjustment, with future changes to come through separate rulemaking. Pages claiming the chart is refreshed every year are republishing the same figures.

The Residual Income Tables

The monthly minimums below come from the VA Lenders Handbook, Chapter 4. Columns run Northeast, Midwest, South, West.

Loans of $79,999 and below

Add $75 for each member over five, up to a family of seven.

Loans of $80,000 and above

Add $80 for each member over five, up to a family of seven.

Most purchase loans land in the second table. A few consumer pages print the West, four-person, smaller-loan cell as $976. The handbook says $967.

How Does Family Size Change the Requirement?

Family size is a counting rule, not just a column. Under 38 CFR 36.4340, all household members are counted. That includes a spouse who is not on the title or the note. It also includes dependents who are not the veteran’s legal dependents, such as a spouse’s children from a prior marriage.

So a household with a veteran, a non-borrowing spouse and two stepchildren is a family of four for this test, even though only one person signs the note.

The step from one size to the next is large. In the larger-loan table, moving from a family of two to a family of four in the Midwest raises the minimum from $738 to $1,003. A bigger household needs a bigger cushion, and nothing about the veteran’s income changes that.

The foster-care exception

The handbook has one clear carve-out. A lender may count verified foster-care income only to offset the extra residual requirement created by foster children. In the handbook’s example, a household with two foster children whose stipend offsets the added requirement is sized as a family of two instead of four. The stipend helps with that offset and nothing more.

How Does Region Move the Number?

Region alone shifts the requirement meaningfully. Take one household, a family of four with a loan in the larger tier:

The West sits $114 above the Midwest and South for the same family and the same loan. The logic is cost of living: higher housing-adjacent costs, utilities and everyday spending in some regions mean more cash is needed to cover them. Midwest and South share identical figures in every cell of both tables.

How a Lender Builds Your Actual Number, Step by Step

The lender runs this sequence. A borrower can run the same steps for a rough self-check, though the lender’s documented figures control.

1. Count the household. Everyone counts, including a non-borrowing spouse and non-legal dependents.

2. Pick the cell. The lender matches the property’s region and the loan-amount tier to the family size.

3. Build net income from actual income. The regulation allows only actual income for the residual income calculation.

4. Subtract the obligations. That means taxes, the full housing payment and recurring debts.

5. Include collections. Unpaid non-medical collection accounts must be included in both DTI and residual income, including on files run through an automated underwriting system.

6. Compare and document. The lender compares the leftover figure with the table cell and records it on VA Form 26-6393.

The difference between what is left and what the table requires is your headroom. Positive headroom is a comfortable file. Headroom near zero is where compensating factors start doing the work.

Picture a veteran buying in the South with a spouse and two children, so a household of four, on a loan in the larger tier. The lender looks for at least $1,003 left over each month. If the lender’s math shows more than that, the file clears this test. If it shows less, the lender looks at the whole file, not only the shortfall.

Residual Income and the 41% Debt-to-Income Guideline

The VA’s regulation names debt-to-income and residual income as the two primary underwriting standards. Ordinarily the veteran must meet both, but failing one does not automatically disqualify the veteran. The handbook describes the table minimums as a guide, and says they should not automatically trigger approval or rejection. They are weighed with the other credit factors, and that is why residual income carries the most weight without acting as a hard line.

The 41% figure is a guideline, not a cap. A ratio above 41% needs residual income well above the table minimum, and the handbook sets a specific marker. For loans closed automatically with DTI above 41%, a justification statement signed by the underwriter’s supervisor is required. The exception applies when residual income exceeds the guideline by at least 20%.

The cushion is often misstated

Having 20% more residual income than required does not raise the bar. It does the opposite. The regulation says the second-level review and statement of justification are not required in that case. The cushion removes a review step. It does not add a requirement.

An older version of the rule also addressed the reverse situation, a file that falls short on residual income while DTI is at or under 41%. That text allowed approval with justification from the underwriter’s supervisor. The wording has been revised over the years, so confirm the current rule before relying on it.

Which Income Counts, and Which Doesn’t

This is where borrowers get surprised.

• Tax-free income. A lender may gross up non-taxable income, such as certain disability payments, to calculate DTI. For residual income, only actual income is used. A gross-up can help DTI without helping residual income.
• Temporary income. VA educational allowances and unemployment compensation are not treated as stable and reliable income.
• Spouse’s income. A non-borrowing spouse still counts in the household size. Whether and how that spouse’s income is used depends on how the lender documents and counts it, so ask the loan officer directly.

Why do lender estimates sometimes differ from a borrower’s own math? Usually because the lender uses documented actual income, counts collections the borrower forgot, and applies the household size by the rules above rather than by who is on the note.

Where the General Rule Breaks

A few named edge cases change the outcome.

• Foster children. Covered above: stipend income offsets only the added requirement.
• Collections. Unpaid non-medical collections are included in both tests. Paying them down before applying improves the monthly cushion.
• Military facility use. Older handbook text allowed a reduction of at least 5% in the residual figure for active-duty or retired borrowers who would keep using nearby military facilities. That language was not confirmed in current official text, so ask a loan officer whether any such adjustment applies to your file.
• Native American Direct Loans. The same underwriting standards apply, except where the Secretary modifies them for housing on trust lands.
• Manufactured homes. The same standards apply, and waivers are allowed only in extraordinary circumstances.
• More than seven people. The tables run to seven. The rule’s published add-ons stop there, so ask the lender how a larger household is handled.

What the Borrower’s Decision Looks Like in Practice

On a purchase, the VA loan offers 100% financing with no down payment as long as the price is not above the appraised value. There is no mortgage insurance of any kind. With full entitlement there is no VA loan limit. With remaining entitlement, a down payment may be required, so speak with a loan officer about your specific situation.

VA sets no minimum credit score. Across the wholesale programs Lendmire places VA loans with, decision scores start at 580, and amounts reach $4,000,000 with full entitlement. Those are the network’s figures, and individual lenders review every file.

The VA funding fee is a one-time charge on most VA loans, but it is waived for veterans receiving compensation for a service-connected disability and for the other exempt groups. For a first-use purchase it is 2.15% with less than five percent down, 1.5% with five to under ten percent down, and 1.25% with ten percent or more down. Subsequent use is 3.3% with less than five percent down, with the same 1.5% and 1.25% tiers above that. Your certificate of eligibility from VA decides eligibility.

Practical levers when the cushion is thin:

• Pay off or pay down recurring debts and any collection accounts before applying.
• Choose a purchase price that keeps the housing payment lower, since residual income can limit the price even when DTI looks fine.
• Add down payment if available. It lowers the loan and the payment.
• Confirm the household count and region before assuming the number.
• Ask the lender what compensating factors it weighs on a close file.

Veterans with larger households or buying in higher-cost regions should check residual income first, before DTI. It is usually where the purchase budget is actually set.

Lendmire’s VA loan programs page lays out the structure in more detail.

If you are buying a home and want to see whether a VA loan fits your file, Lendmire can help you compare the options and what each one asks of the file.

For your own numbers, request a scenario review with Lendmire.

About Lendmire

As a mortgage broker (NMLS# 2371349), Lendmire helps homeowners and home buyers in 16 states with FHA, VA, conventional and jumbo purchase and refinance loans arranged through wholesale lenders. Lendmire is never the lender; program terms are set by the lender and the agency guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.

References

1. VA Lenders Handbook (Pamphlet 26-7), Chapter 4: Credit Underwriting

2. Federal Register, October 17, 1997

3. 38 CFR 36.4340 (govinfo, 2021 edition)

4. eCFR, 38 CFR Part 36