Short answer: VA looks at two numbers: your debt-to-income ratio (DTI), with a 41% guideline, and your residual income, the money left each month after major expenses. In California (VA’s West region), the residual income guideline for a family of four on a loan of $80,000 or more is $1,117 a month. If your DTI is over 41% but your residual income is at least 20% above the guideline, VA doesn’t require a second-level review.
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Residual income is what’s left from your monthly income after paying federal, state and local taxes, the new house payment (principal, interest, taxes, insurance and HOA or special assessments), estimated maintenance and utilities, long-term debts, childcare and other obligations. VA uses it as a practical test of whether a family can cover living costs after the mortgage. The rule is in 38 CFR 36.4340.
California is in VA’s West region. The guideline depends on family size and loan amount, and everyone living in the household counts, not just the borrowers.
| Family size | Loan $80,000 and above | Loan $79,999 and below |
|---|---|---|
| 1 | $491 | $425 |
| 2 | $823 | $713 |
| 3 | $990 | $859 |
| 4 | $1,117 | $967 |
| 5 | $1,158 | $1,004 |
| Over 5 | Add $80 for each additional member up to 7 | Add $75 for each additional member up to 7 |
Source: 38 CFR 36.4340(e), West region table. Almost every San Diego loan is $80,000 or more, so the left column is the one that usually applies.
VA’s rule lets the residual income guideline be reduced by at least 5% for active-duty members and military retirees when there’s a clear indication they will keep using the services and facilities of a nearby military base. With Naval Base San Diego, MCAS Miramar, Camp Pendleton, North Island and other installations nearby, this often applies here. For a family of four, 5% of $1,117 is $55.85, which lowers the guideline to $1,061.15.
VA’s debt-to-income ratio is your total monthly debt, meaning the new housing payment (PITI plus HOA or assessments) plus long-term debts, divided by gross monthly income. The guideline is 41%. That’s not a hard cap:
| Family of four, loan $80,000+ | Monthly residual income |
|---|---|
| VA guideline | $1,117.00 |
| 120% of guideline (needed for DTI over 41% without second-level review) | $1,340.40 |
| Guideline with the minimum 5% military adjustment | $1,061.15 |
VA’s rule recognizes tax-free income, such as BAH or VA disability compensation. If your DTI is over 41% only because of tax-free income, the underwriter notes that in the file rather than treating it as a problem. And because no income tax comes out of tax-free income, more of it counts toward residual income. See our BAH and your mortgage guide for how housing allowance is used.
You still have options. VA’s rule lists compensating factors underwriters can weigh, including:
Paying off a small debt, choosing a lower-HOA property or adding a co-borrower can also change the math. A larger property, like a duplex or fourplex, raises expenses, and rental income counts only under VA’s landlord rules.
VA doesn’t set a minimum credit score, and we review every credit profile. If credit is holding you back, we can refer you to our third-party credit repair partner and map out a plan. Self-employed? Read VA loans for self-employed borrowers.
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Hyde Funding · 8996 Miramar Rd., Suite 250, San Diego · NMLS #391380 · Lending since 2015 · Lending in all states
California is in VA’s West region. For loans of $80,000 or more, the guideline is $491 for a household of one, $823 for two, $990 for three, $1,117 for four and $1,158 for five, plus $80 for each additional member up to seven (38 CFR 36.4340).
VA’s guideline is 41%, but it is not a hard cap. If DTI is above 41% and residual income is at least 20% above the guideline, VA does not require a second-level review. Otherwise, approval needs compensating factors.
Yes. All members of the household count toward family size, even if they are not on the loan.
Yes. VA allows the guideline to be reduced by at least 5% for active-duty members and military retirees who will clearly keep using nearby base facilities, which is common around San Diego.
Yes. No income tax is deducted from tax-free income, which helps residual income. If DTI is above 41% solely because of tax-free income, VA’s rule says the underwriter notes that in the loan file.
Steven Hyde, NMLS #391380 (NMLS Consumer Access). Equal Housing Opportunity. Hyde Funding is a mortgage lender and is not affiliated with the U.S. Department of Veterans Affairs or any government agency. Examples are illustrative only and are not quotes or commitments to lend. Terms depend on credit, income, property and lender approval. Tax information is general; consult a tax advisor or the County Assessor about your situation.