What is residual income in mortgage underwriting?

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Multiple Choice

What is residual income in mortgage underwriting?

Residual income is the amount of income left after you pay monthly debt obligations and essential living expenses. It’s a dollar amount lenders look at to ensure you have enough money each month to cover basic needs after debt service and to still make the mortgage payment. This is different from gross income (which is before any debts are paid) and from the mortgage payment itself, and it’s more about the cushion you have rather than just the size of your income or debt-to-income ratio. For example, if you earn $6,000 a month, pay $1,200 in debts, and have $2,000 for essential living costs, your residual income would be $2,800. Lenders (especially VA) use residual income thresholds to gauge ongoing affordability beyond DTI.

Residual income is the amount of income left after you pay monthly debt obligations and essential living expenses. It’s a dollar amount lenders look at to ensure you have enough money each month to cover basic needs after debt service and to still make the mortgage payment. This is different from gross income (which is before any debts are paid) and from the mortgage payment itself, and it’s more about the cushion you have rather than just the size of your income or debt-to-income ratio. For example, if you earn $6,000 a month, pay $1,200 in debts, and have $2,000 for essential living costs, your residual income would be $2,800. Lenders (especially VA) use residual income thresholds to gauge ongoing affordability beyond DTI.

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