VA Manual Underwriting Guide
VA loans have unique manual underwriting rules focused on residual income—the money left over after all bills are paid. Learn how veterans can qualify even with higher DTI ratios.
VA Manual Underwriting Facts
- Residual income is the primary qualification factor
- DTI up to 50% possible with compensating factors
- 0% down payment still available with manual underwriting
- Tax-free military income counted at full value
What Makes VA Manual Underwriting Different?
Unlike FHA and conventional loans that focus heavily on DTI, VA loans prioritize residual income—the money you have left each month after paying all obligations.
The VA believes that what matters most is whether you have enough money left over each month to cover daily living expenses. This is called residual income.
How It's Calculated:
Gross Monthly Income
− Federal & State Taxes
− Housing Payment (PITI + HOA)
− Monthly Debts
− Maintenance & Utilities Estimate
= Residual Income
VA manual underwriting is required when the Automated Underwriting System (AUS) returns a "Refer" or when specific conditions exist.
- DTI above 41% - Exceeds standard guideline
- Insufficient residual income - Below regional requirement
- Recent bankruptcy - Within 2 years (Chapter 7) or 1 year (Chapter 13)
- No credit score - Insufficient credit history
Residual Income Requirements by Region
The VA sets minimum residual income requirements based on your geographic region and family size. These are the minimum amounts you must have left over each month.
| Region | 1 Person | 2 People | 3 People | 4 People | 5+ People |
|---|---|---|---|---|---|
Northeast CT, MA, ME, NH, NJ, NY, PA, RI, VT | $450 | $755 | $909 | $1025 | $1062 |
Midwest IL, IN, IA, KS, MI, MN, MO, NE, ND, OH, SD, WI | $441 | $738 | $889 | $1003 | $1039 |
South AL, AR, DC, DE, FL, GA, KY, LA, MD, MS, NC, OK, PR, SC, TN, TX, VA, WV | $441 | $738 | $889 | $1003 | $1039 |
West AK, AZ, CA, CO, HI, ID, MT, NV, NM, OR, UT, WA, WY | $491 | $823 | $990 | $1117 | $1158 |
Note: For loan amounts over $80,000, add $80 per family member over 5 to the 5+ requirement.
VA Compensating Factors
These strengths can help you qualify with higher DTI ratios (up to 50%) or offset other risk factors in your application.
Residual income exceeds the regional requirement by 20% or more
Strong credit history with no late payments in the past 12 months
Significant portion of income is tax-free (VA disability, BAH, etc.)
Access to commissary, exchange, or other cost-reducing benefits
New mortgage payment is similar to current housing expense
Previous homeownership with no late mortgage payments
VA Residual Income Calculator
Check if you meet VA residual income requirements for manual underwriting.
Residual Income 120%+ of Guideline
Excellent Credit History
Tax-Free Income
Additional Military Benefits
Minimal Debt Increase
Satisfactory Homeowner History
Your Results
Your DTI Ratio
40.0%
Within standard 41%
Your Residual Income
$4,800
Required: $738 (South, 2 persons)
Qualification Status
Strong Compensating Factor: Your residual income exceeds 120% of the requirement, which is a significant strength for manual underwriting approval.
Real VA Manual Underwriting Success Stories
See how veterans and service members qualified through manual underwriting when automated systems said "Refer."
Challenge:
DTI exceeded standard 41% guideline, AUS returned Refer
Solution:
Manual underwriting approved with residual income at 135% of requirement plus tax-free VA disability income
Outcome:
Approved for $425,000 VA loan with 0% down payment
Challenge:
Only 2 credit tradelines, insufficient for AUS approval
Solution:
Manual underwriting with non-traditional credit (rent, utilities, insurance) plus excellent residual income
Outcome:
Approved for $375,000 VA loan with 0% down payment
Challenge:
High DTI and large family size increased residual income requirements
Solution:
Tax-free BAH and BAS income plus commissary access reduced effective expenses
Outcome:
Approved for $550,000 VA loan with 0% down payment
VA Manual Underwriting FAQ
Residual income is the money left over each month after paying taxes, housing costs, and all debts. The VA uses this to ensure you have enough for daily living expenses like food, transportation, and utilities.
Yes! VA manual underwriting does not affect your down payment options. Eligible veterans can still finance 100% of the home's value with no down payment required.
The standard DTI guideline is 41%, but with compensating factors (especially residual income exceeding 120% of the requirement), DTI up to 50% may be approved.
Tax-free income like VA disability compensation, BAH, and BAS is counted at full value. Some lenders may even gross it up by 25% since you don't pay taxes on it.
VA loans allow manual underwriting after bankruptcy: 2 years after Chapter 7 discharge or 1 year into a Chapter 13 repayment plan with court approval and 12 months of on-time payments.
Ready to Use Your VA Benefits?
Our VA loan specialists understand manual underwriting inside and out. Let us help you navigate the process and get approved.