HECM Residual Income Calculator

What is residual income for mortgages?

Residual income refers to the amount of money you have left each month after paying for essential expenses like your mortgage, property taxes, insurance, and other debts. Lenders use this calculation to evaluate your ability to repay a loan and maintain a healthy financial lifestyle.

Why is residual income important for mortgage qualification?

Residual income is a key factor in determining whether you can afford a mortgage. It ensures that you have enough money left over after meeting your monthly obligations to cover day-to-day expenses like food, transportation, and utilities. This is especially important for VA loans, which have specific residual income requirements.

How is residual income calculated?

Residual income is calculated by subtracting all major monthly obligations from your gross monthly income. These obligations typically include:

• Mortgage payments (principal, interest, taxes, and insurance)
• Car loans or leases
• Credit card minimum payments
• Student loans or other personal loans
• Child support or alimony
• Utilities and other essential living expenses

The formula is:
Residual Income = Gross Monthly Income – Monthly Obligations

Gross monthly income includes wages, pensions, and other consistent income sources.

What factors affect my residual income?

Several factors can impact your residual income, including:

• Gross monthly income: Higher income increases your residual income.
• Monthly debt obligations: Paying off debts reduces the expenses subtracted from your income.
• Family size: Larger families require more residual income to meet the VA’s requirements.
• Geographic location: Regions with a higher cost of living require more residual income to qualify.

What is a good residual income amount?

The ideal residual income depends on your lender’s requirements and personal financial goals. As a general rule, having a higher residual income than required can strengthen your loan application and provide more financial stability.

How can I improve my residual income?

To increase your residual income:

• Pay off high-interest debts: Reducing your monthly obligations leaves more money available.
• Increase your income: Consider additional income sources or negotiating a raise.
• Lower your mortgage payment: Refinance your loan or increase your down payment to reduce monthly costs.
• Manage discretionary expenses: Cut back on non-essential spending to free up more income.

How does South River Mortgage use residual income?

At South River Mortgage, we prioritize ensuring that our borrowers are financially secure and meet all residual income requirements. Use our Residual Income Calculator above to quickly determine your financial standing, and speak with one of our loan experts to explore your options.