What does 'residual income' refer to in ATR analysis?

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What does 'residual income' refer to in ATR analysis?

In ATR analysis, residual income is the amount of income left after subtracting a borrower’s necessary living expenses and their debt payments from their income. This leftover funds figure represents the cushion available to cover the mortgage payments and ongoing costs, helping lenders judge whether the borrower can sustain the loan even if expenses rise or emergencies occur. It’s not the gross income before expenses, nor the value of assets, nor the borrower's credit history length. For example, if monthly gross income is $5,000, debt payments total $1,200, and essential living expenses are $2,800, the residual income is $1,000. A larger residual income indicates greater affordability for the loan.

In ATR analysis, residual income is the amount of income left after subtracting a borrower’s necessary living expenses and their debt payments from their income. This leftover funds figure represents the cushion available to cover the mortgage payments and ongoing costs, helping lenders judge whether the borrower can sustain the loan even if expenses rise or emergencies occur. It’s not the gross income before expenses, nor the value of assets, nor the borrower's credit history length. For example, if monthly gross income is $5,000, debt payments total $1,200, and essential living expenses are $2,800, the residual income is $1,000. A larger residual income indicates greater affordability for the loan.

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