Introduction
Welcome to our comprehensive guide on VA Loan Reserves. If you’re a Veteran, active-duty service member or a surviving spouse, VA Loans can be an incredible tool for purchasing or refinancing a home. However, many Veterans may not know that they require reserves to qualify for a VA Loan. In this article, we’ll cover everything you need to know about Va Loan Reserves and how they apply to your VA Loan.
At VA Loans Insider, we’re passionate about educating Veterans on VA Loans and ensuring they have access to the best home loan options available. Our team of experts has over a decade of experience helping Veterans and their families secure the financing they need to purchase or refinance their homes. Whether you’re looking to buy a new home or refinance an existing one, we’ve got you covered.
What Are VA Loan Reserves?
VA Loan Reserves refer to the amount of money that the borrower has left after closing on their new home. This money is typically referred to as ‘residual income’ and is used to ensure that the borrower can successfully manage their new mortgage payment and any other financial obligations they may have. Reserves are calculated based on factors such as family size, location, and other expenses.
For example, suppose you’re a Veteran applying for a VA Loan. In that case, the lender will require you to provide documentation of your monthly income, including pay stubs, tax returns, and other financial statements. They will also review your credit report and other financial obligations such as car payments, credit card debt, and child support.
Once they have reviewed your financial information, they will calculate your residual income or the amount of money you have left over after paying all of your monthly expenses. The VA has set specific residual income requirements that must be met to qualify for a VA Loan, and these requirements vary depending on your family size and location.
Why Do VA Loans Require Reserves?
VA Loans are designed to be a safe and affordable way for Veterans to purchase or refinance their homes. By requiring reserves, lenders can ensure that borrowers have the financial means to manage their new mortgage payment and other financial obligations that come with homeownership.
Reserves are an essential factor in the VA Loan approval process. Without reserves, borrowers may struggle to make their mortgage payments, leading to financial difficulties and even foreclosure. By requiring reserves, the VA and lenders can help Veterans avoid these challenges and ensure that they have a successful and sustainable homeownership experience.
How Are VA Loan Reserves Calculated?
Va Loan Reserves are calculated by subtracting your total monthly expenses from your monthly income. Your monthly income includes your base pay, housing allowance, and any other income sources. Your monthly expenses include your mortgage payment, property taxes, insurance, and other debts and obligations.
The VA has set minimum residual income requirements based on family size and location that borrowers must meet to qualify for a VA Loan. The required residual income varies depending on where you live and the size of your family. Borrowers must provide documentation of their monthly expenses, including utility bills, car payments, child support, and other debts.
What Are The VA Residual Income Requirements?
The VA has set specific residual income requirements that must be met to qualify for a VA Loan. These requirements are based on your family size, location, and other factors. Some of the minimum residual income requirements are:
Family Size |
Northeast |
Midwest |
South |
West |
|---|---|---|---|---|
1 |
$450 |
$441 |
$441 |
$491 |
2 |
$755 |
$738 |
$738 |
$823 |
3 |
$909 |
$889 |
$889 |
$990 |
4 |
$1,025 |
$1,003 |
$1,003 |
$1,117 |
5 or more |
$1,125+ |
$1,097+ |
$1,097+ |
$1,218+ |
*These numbers are accurate as of 2021 and are subject to change.
How Much VA Loan Reserves Do I Need?
The amount of VA Loan Reserves you need will depend on several factors such as your family size, location, and other expenses. However, as a general rule, most lenders require borrowers to have at least two months of reserves to qualify for a VA Loan.
For example, suppose your total monthly expenses are $2,000, including your mortgage payment, property taxes, and other debts. In that case, you would need to have at least $4,000 in reserves to qualify for a VA Loan.
What If I Don’t Have Enough VA Loan Reserves?
If you don’t have enough VA Loan Reserves, some lenders may allow you to use your IRA or 401k as reserves. However, you will need to provide documentation and meet the lender’s specific requirements.
You can also request an exception to the VA’s residual income requirements if you have extenuating circumstances such as high medical expenses or significant childcare costs. Lenders may also consider non-traditional sources of income such as rental income or spousal support.
VA Loan Reserves FAQs
1. What Is The Purpose Of VA Loan Reserves?
The purpose of VA Loan Reserves is to ensure that borrowers have the financial means to manage their new mortgage payment and other financial obligations that come with homeownership.
2. How Are VA Loan Reserves Calculated?
Va Loan Reserves are calculated by subtracting your total monthly expenses from your monthly income. Your monthly income includes your base pay, housing allowance, and any other income sources. Your monthly expenses include your mortgage payment, property taxes, insurance, and other debts and obligations.
3. What Are The VA Residual Income Requirements?
The VA has set specific residual income requirements that must be met to qualify for a VA Loan. These requirements are based on your family size, location, and other factors.
4. How Much VA Loan Reserves Do I Need?
The amount of VA Loan Reserves you need will depend on several factors such as your family size, location, and other expenses. However, as a general rule, most lenders require borrowers to have at least two months of reserves to qualify for a VA Loan.
5. Do I Need Reserves For A VA IRRRL?
For a VA IRRRL, you don’t need to meet residual income requirements or have reserves. The purpose of a VA IRRRL is to refinance an existing VA Loan into a new VA Loan with better terms, so no additional reserves are required.
6. Can I Use Gift Funds As Reserves?
Yes, many lenders will allow you to use gift funds as reserves. However, you will need to provide documentation and meet the lender’s specific requirements.
7. How Can I Increase My VA Loan Reserves?
To increase your VA Loan Reserves, you can do the following:
- Prioritize saving.
- Pay off debts.
- Lower your monthly expenses.
- Increase your income.
The Bottom Line: VA Loan Reserves
Va Loan Reserves are an essential factor in the VA Loan approval process. By requiring reserves, lenders can ensure that borrowers have the financial means to manage their new mortgage payment and other financial obligations that come with homeownership. As a Veteran or active-duty service member, you have access to some of the most affordable and sustainable home loan options available. By understanding VA Loan Reserves and meeting the minimum requirements, you can take advantage of these incredible benefits and achieve your homeownership goals.
Closing/Disclaimer
At VA Loans Insider, we’re committed to providing Veterans and their families with the resources and information they need to make informed decisions about their home financing options. While we make every effort to ensure the accuracy and completeness of the information provided in this article, we cannot guarantee its accuracy or completeness. The information provided in this article should not be considered legal or financial advice.
Please consult with a qualified professional before making any decisions regarding your home financing or any other financial matter.
Do you have questions or need assistance with your VA Loan? Our team of experts is here to help. Contact us today to get started.