Residual income is the money a VA borrower's household has left each month after taxes, the new house payment and estimated home costs, and other monthly debts. VA compares it to a minimum set by region, family size and loan amount in its regulations. For a Texas home, the "South" region applies, and for a loan of $80,000 or more the published monthly guideline for a family of four is $1,003 (38 CFR 36.4340(e)). It's VA's second test alongside debt-to-income, and it often matters more.
Here's how the calculation works, what counts toward family size, and what happens when your numbers fall short.
VA's rule says the two primary underwriting standards are the debt-to-income ratio and residual income analysis, and that a borrower ordinarily must meet both (38 CFR 36.4340(c)). A ratio only tells you what share of your income goes to debt. Residual income asks a more practical question: after the mortgage and bills, is there enough left for food, gas, clothes, child care and the rest of real life? VA bases its guideline figures on the Bureau of Labor Statistics Consumer Expenditure Survey (38 CFR 36.4340(e)).
For how VA's ratio test compares to other programs, see debt-to-income limits by loan type.
Start with gross monthly income from stable, verified sources, then subtract:
What's left is residual income. The underwriter compares it to the guideline for your region, family size and loan amount.
Texas is in VA's South region (38 CFR 36.4340(e)(3)). These are the published monthly guidelines, as shown in the eCFR on Oct 1, 2026. VA can change them, so your lender should check the current table.
For an active duty member or military retiree, the figures are reduced by at least 5% when there's a clear indication the borrower or spouse will keep using facilities on a nearby military base (38 CFR 36.4340(e)(4)).
This is where people get surprised. VA says all members of the household must be counted, even a spouse who isn't on the loan or title, and even people who depend on the veteran for support who aren't legal dependents, like a spouse's children from a prior marriage (38 CFR 36.4340(e)).
There are two narrow ways the count can come down:
Leaving someone off the application to clear the chart isn't an option. The underwriter will ask who lives in the home, and the answer has to be accurate.
VA allows verified nontaxable income, like certain military allowances, child support, workers' compensation or disability retirement payments, to be "grossed up" for the debt-to-income ratio. But VA's rule says only your actual income may be used to calculate residual income (38 CFR 36.4340(f)). That's why a gross-up can help your ratio without changing your residual. See can nontaxable income be grossed up.
VA's rule spells out what happens when a borrower doesn't meet both tests (38 CFR 36.4340(c)):
The justification must name real compensating factors, not filler. VA lists examples like excellent long-term credit, conservative use of consumer credit, minimal consumer debt, long-term employment, significant liquid assets, a down payment (or equity on a refinance), little or no increase in shelter expense, military benefits, satisfactory homeownership experience, high residual income, low debt-to-income ratio, tax credits of a continuing nature, and tax benefits of homeownership (38 CFR 36.4340(c)(5)). VA adds that compensating factors should be unusual strengths tied to the weakness, not just meeting basic requirements (38 CFR 36.4340(c)(6)). Meeting both standards still doesn't mean automatic approval. Credit and the whole file still matter.
These get mixed up a lot. Residual income is a monthly leftover from income. Reserves are savings you have in the bank after closing. VA's regulation does have one specific reserve rule: on a multi-unit property, prospective rent can't be counted unless you show a reasonable likelihood of success as a landlord and verified cash reserves to carry the full house payment for at least 6 months without the rent (38 CFR 36.4340(f)).
This example is made up to show how the test works.
Marcus is a veteran buying in Haltom City with his wife and her two children from a prior marriage. The kids aren't his legal dependents, and his wife isn't on the loan. He assumed his family size was one. Under VA's rule, all four people in the household count unless his wife's stable employment is verified, which could let her come out of the count, or the children's verified child support supports reducing it. His wife has a steady job of several years, so the lender documents it and the count drops to three. His worksheet, with taxes from IRS tables, realistic utilities for the house he picked and his car loan, shows residual income comfortably above the South region guideline for a family of three on a loan over $80,000. His ratio is a little over 41%, but his residual clears the guideline by more than 20%, so the file doesn't need the supervisor justification statement.
Not sure where your residual income lands? Send me your income, debts and household size, and I'll run VA's worksheet on the homes you're considering before you make an offer. Book a call, or start an application. For the full picture, see how VA loans work, and if you receive child support, see using support income.
Links checked Oct 21, 2026.
About the author: McKade Lively, NMLS 2704474, American Pacific Mortgage Corporation dba True North Home Loans, NMLS 1850.
Equal Housing Opportunity.
Last reviewed: Oct 2026