Follow up to VA Residual Income

Last week I posted some information regarding VA residual income, but I didn’t really go into a lot of details as to how it’s calculated and the factors that affect it.  Here is a link to that last post – VA residual income. Residual income is basically the income left after all the expense of the house, daycare (if applicable), and state and federal taxes.  The VA has this requirement because they want to make sure the Veteran can afford the home and not get into any financial hardship.  Remember too, that the VA will guarantee a portion of the loan to the lender so there is some level of risk for the Dept of Veteran Affairs.

Factors in VA’s Calculation for Residual Income

As I briefly mentioned above there are some specific calculations when determining a Veterans residual income.  The way it’s calculated is all the same, but the outcomes can be very different.  Another term for residual income is balance available for family support.  Here is a list of deductions from a Veterans pay that will be used to calculate the leftover balance:  Federal taxes, State taxes, Social Security, Medicare, Debts and Obligations and Monthly Shelter Expenses.

Federal Taxes – We can all count on 2 constants in life, death and taxes.  Anyone who makes money understands taxes so I wont go into detail about it.

State Taxes – See comment above.

Social Security – This is a depleting fund the government has set up to pay for others retirement and maybe your own.  I doubt in my life time I will never see any money from SS when I retire.

Medicare – Another Government health insurance plan.

Debts and Obligations – This is all the debt – example – car payments, credit cards, installment loans, etc.  This also includes child support and alimony.

Monthly Shelter Expenses – VA uses this to determine the amount of monthly expenses for the utilities like gas, electric, water/sewer and garbage.  How much a Veteran actually spends each month for these housing expenses can and are obviously different from one Veteran to another, so the VA set the standard by multiplying the square footage of the home by .14 cents.  For example if the SQ footage of a home is 2500 X .14 the monthly housing expense would be $350 per month.

Now that we know what to deduct from a Veterans pay, let’s actually calculate the residual income.

Veteran (Mike) makes $4875.25 GROSS every month and has a wife who doesn’t work and 1 child and lives in the state of Utah and wants to buy a home for $150,000 that has 1850 SQ feet.

Federal Taxes Deducted $361.29
State Taxes Deducted $225.14
Social Security $301.27
Medicare $70.69
Debts and Obligations (including new mortgage payment PITI) $850 for debt
$1072.23 for mortgage
Total debt $1922.23
Monthly Shelter Expense $259
Total Deductions $3139.62

So the gross is $4875.25 and the total deductions are $3139.62 which leaves Mike with a total amount balance of $1735.63 available for family support.  In the last post I gave a table for residual incomes required by region and loan amount.  The amount required for Mike is $990 (West, loan amount over $80,000 and family of 3).  Based on this scenario Mike would be able to qualify for his home.

With this post and my last post, I would think I have hit on all points of VA Residual income and can be used as a reference.

Banks Usurping VA Authority BAD for Vets

Over the past few months, as the credit crunch has deepened, lenders have become increasingly strict with VA home loans. Instead of sticking to the VA guidelines, lenders are now implementing their own policies, and we aren’t happy about it. Gone are the days when no credit is needed. Gone are the days when an appraisal is not necessary for a VA streamline. Gone are the days when service to our country is the major prerequisite for a VA loan.

Now, to make matters even worse, lenders are pulling the rug out from under the nation’s veterans. Recently, AME Financial Corp decided that not funding loans already closed by veterans was in their best interest. Yes, that is correct. Loans that have CLOSED but not FUNDED will not be funded by AME. This means that Vets are left in a lurch on their VA loans. The locks that were guaranteed, are no longer valid. All time low rates are lost due to ineptitude on the part of the lender. A press release can be found here.

What does this mean for the everyday veteran?

It means that taking advantage of all time low rates just got that much more difficult. Sadly this sort of behavior is not actually all that uncommon of banks that are ready to implode. This website: tallies a running list of failed banks and do not be surprised when AME becomes the next.

What you can do.

Start the process now to take advantage of historically low rates. We may never again see fixed rates below 5%. Take advantage before further tightening occurs. Contact Low VA Rates as soon as possible to get started. We can help you through the process quickly in order to avoid all the new changes and new policies that are coming. The Streamline loan process takes about 5 weeks start to finish and can save you hundreds each month. You can even forgo 1-2 mortgage payments with no penalty. Every penny saved is a penny earned and, with the holidays coming up, It’s time to earn all the pennies we can! (yes, preferably more than pennies, but you get what I’m saying.)

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*Annual savings calculator based on 2015 monthly average savings extrapolated year-to-date.