VA loans are famous for helping Veterans and eligible service members buy a home with flexible guidelines and (often) no down payment. But there’s one VA underwriting concept that surprises a lot of buyers the first time they hear it: residual income.
Residual income is the money you have left each month after paying major obligations. The VA uses it as a reality check: after you pay your new housing payment and other monthly debts, do you still have enough left to live on?
If you’re buying in Minnesota (or anywhere), understanding residual income can help you qualify more confidently, choose the right home price range, and avoid last-minute underwriting stress.
What is VA residual income?
In the VA Lender’s Handbook, residual income is essentially: net effective income minus monthly shelter expense and other obligations. In plain English, it’s your monthly ‘leftover’ budget.
Unlike a debt-to-income ratio (DTI), which is expressed as a percentage, residual income is measured in dollars. That’s important because two borrowers can have the same DTI but very different real-world budgets.
The VA doesn’t publish one single residual income minimum for everyone. The minimum depends on (1) where you live, (2) your family size, and (3) your loan size tier.
Why the VA cares about residual income
Residual income is designed to account for the costs of everyday life—food, transportation, utilities, clothing, and the unexpected. It’s one reason VA loans can approve borrowers that other programs might decline, because it looks at affordability in dollars, not just ratios.
The 2026 VA residual income tables (official numbers)
The VA residual income guidelines are published in VA Pamphlet 26-7, Chapter 4. The tables are split into two loan amount tiers: loans of $79,999 and below, and loans of $80,000 and above.
They’re also split into four geographic regions: Northeast, Midwest, South, and West. Minnesota is in the Midwest region.
Residual income table: loan amounts $79,999 and below
- Family size 1: Northeast $390, Midwest $382, South $382, West $425
- Family size 2: Northeast $654, Midwest $641, South $641, West $713
- Family size 3: Northeast $788, Midwest $772, South $772, West $859
- Family size 4: Northeast $888, Midwest $868, South $868, West $967
- Family size 5: Northeast $921, Midwest $902, South $902, West $1,004
- Family size over 5: add $75 for each additional member up to a family of seven
Residual income table: loan amounts $80,000 and above
- Family size 1: Northeast $450, Midwest $441, South $441, West $491
- Family size 2: Northeast $755, Midwest $738, South $738, West $823
- Family size 3: Northeast $909, Midwest $889, South $889, West $990
- Family size 4: Northeast $1,025, Midwest $1,003, South $1,003, West $1,117
- Family size 5: Northeast $1,062, Midwest $1,039, South $1,039, West $1,158
- Family size over 5: add $80 for each additional member up to a family of seven
Important note for many Veterans
VA guidance also allows lenders to reduce the residual income figure by a minimum of 5% for an active-duty or retired service member when there’s a clear indication they’ll continue to receive benefits from nearby military-based facilities (for example, commissary or exchange savings).
How to calculate residual income (step-by-step)
Every lender’s worksheet looks a little different, but the idea is the same. Here’s a simple way to think about it.
Step 1: Start with monthly gross income
Add up all stable, verifiable monthly income (base pay, allowances if applicable, disability income if documented, retirement, and so on).
Step 2: Subtract taxes and other standard payroll deductions
This is where the VA concept of ‘net effective income’ comes from. Your lender will estimate federal and state income tax withholding, Social Security/Medicare, and other payroll deductions based on your documentation.
Step 3: Subtract your proposed housing payment (the ‘shelter expense’)
Generally this includes principal and interest plus property taxes and homeowners insurance (PITI). If there’s mortgage insurance, HOA dues, or flood insurance, those are typically included in the monthly housing expense as well.
Step 4: Subtract your other monthly debts
This includes things like auto loans, student loans, credit card minimums, personal loans, child support, and any other obligations that appear on your credit report or are documented through other means.
Step 5: What’s left is your residual income
Once you have that leftover dollar amount, you compare it to the VA residual income table for your region, family size, and loan amount tier.
A quick example (Minnesota / Midwest)
Imagine a family of 3 in Minnesota applying for a VA loan above $80,000. The Midwest guideline for a family of 3 in that tier is $889.
If the borrower’s calculation shows $950 in residual income, they’re above the guideline. If it’s $850, they’re short—and the lender will look for compensating factors or ways to improve the file.
How residual income interacts with DTI (the 41% / 20% rule)
VA loans don’t have a hard DTI cap like some other programs, but the VA handbook says a DTI ratio greater than 41% requires close scrutiny unless certain exceptions apply.
One of the biggest exceptions is residual income: if residual income exceeds the guideline by at least 20%, the VA considers that a strong compensating factor even when DTI is above 41%.
This matters in real life because many otherwise-qualified VA borrowers end up around that 41% DTI line depending on tax estimates, insurance, and property taxes.
If you’re short on residual income: fixes that actually work
The good news is that being short on residual income doesn’t automatically mean ‘denied.’ It usually means you need a better plan.
1) Lower the monthly housing payment (even a little)
- Adjust price range based on total payment, not just purchase price.
- Consider a slightly higher down payment if available (even on VA, down payment can lower payment).
- Choose a home with lower property taxes or no HOA if you’re close to the line.
- If you’re building, be cautious with upgrades that increase the final appraisal and payment.
2) Pay off (or pay down) a monthly debt
Residual income is very sensitive to monthly obligations. Removing a $150/month car payment or a $75/month credit card minimum can move the needle more than people expect.
- Target debts with the highest monthly payment relative to balance.
- If paying off isn’t possible, sometimes paying down a credit card to reduce the minimum payment helps.
3) Document stable income correctly
Underwriting is documentation-driven. Make sure variable income is supported with the right history, and that any VA disability or retirement income is documented in the way your lender needs.
4) Use compensating factors the VA actually respects
Compensating factors vary by lender, but common examples include strong credit history, significant cash reserves after closing, or a proven history of paying a similar housing payment already.
5) If DTI is high, aim to exceed residual by 20%
Because the VA handbook points to residual income exceeding the guideline by at least 20% as an important exception when DTI is above 41%, a smart strategy is to structure the deal so you’re not merely ‘meeting’ the table—you’re comfortably above it.
Common Minnesota questions
Does Minnesota use the Midwest table? Yes—Minnesota is in the Midwest region for VA residual income.
Does the VA residual income table change every year? Not necessarily. The best practice is to use the current VA Pamphlet 26-7 guidance your lender is working from.
What counts as ‘family size’? Typically, it’s everyone who will live in the household, not just borrowers. Your lender will confirm how they’re counting household members for underwriting.
A quick reminder about VA funding fees
Residual income is separate from the VA funding fee, but it’s common for buyers to ask about costs at the same time. On VA-backed purchase and construction loans, the VA funding fee depends on whether it’s your first use and your down payment.
As of the VA’s published table, first-use funding fees are 2.15% with less than 5% down, 1.5% with 5% or more down, and 1.25% with 10% or more down. After first use, the fee is 3.3% with less than 5% down, 1.5% with 5% or more down, and 1.25% with 10% or more down.
Some borrowers are exempt, including Veterans receiving VA compensation for a service-connected disability and certain surviving spouses receiving DIC. The VA also notes that the funding fee can be financed into the loan in many cases.
Work with a mortgage team that runs the numbers early
Residual income is easiest to handle when it’s addressed upfront—before you fall in love with a house that stretches the payment too far.
At Davis Monroe Financial, we’ll help you estimate residual income, DTI, and cash-to-close early, then structure the loan so it meets VA guidelines comfortably.
If you’re buying or refinancing in Minnesota and want a clear plan, call (320) 200-2821 or visit www.mydmf.com to get started.
Sources
VA Pamphlet 26-7, Chapter 4 (Credit Underwriting): https://www.benefits.va.gov/WARMS/docs/admin26/pamphlet/pam26_7/ch04.pdf
VA funding fee and closing costs (VA.gov): https://www.va.gov/housing-assistance/home-loans/funding-fee-and-closing-costs/