For most loan programs, Debt-to-Income (DTI) is the final word on affordability. However, the VA loan uses a more powerful metric: Residual Income. This calculation ensures that after the mortgage and all other bills are paid, you still have enough cash flow to live comfortably in the Kansas City metro.
What is VA Residual Income?
Residual income is the amount of net monthly income remaining after all major expenses—including your new mortgage, taxes, and recurring debts—are paid. While DTI looks at your gross income, residual income focuses on your actual “take-home” cash flow.
This is the primary reason VA loans have the lowest foreclosure rate in the industry. It protects Veterans from becoming “house poor” by ensuring there is always money left for food, gas, and family needs. For those looking to lower their current payments, this calculation is also a key part of the VA IRRRL (Streamline) approval process.
The Step-by-Step Calculation
To calculate your residual income for a 2026 VA loan application, follow this sequence:
- Gross Monthly Income: Start with your total pay (including BAH, BAS, and disability).
- Subtract Taxes: Deduct estimated Federal, State, and Social Security taxes to find your net take-home pay.
- Subtract Proposed PITI: Deduct the full monthly mortgage payment (Principal, Interest, Taxes, and Insurance).
- Subtract Recurring Debts: Deduct car loans, credit card minimums, and child support.
- The Utility Factor: Subtract $0.14 per square foot of the home for estimated maintenance and utilities (e.g., a 2,000 sq. ft. home = $280).
2026 Midwest Residual Income Guidelines
The VA sets specific thresholds based on your region and household size. For Veterans in Kansas and Missouri, the Midwest Region table applies (for loan amounts above $80,000).
*The 20% cushion is often used to offset a Debt-to-Income (DTI) ratio that exceeds 41%.
Expert Strategy: Overcoming a High DTI
If your Debt-to-Income ratio exceeds 41%, you are not automatically denied. In the 2026 underwriting environment, a “High DTI” can be offset by strong residual income. VA guidelines state that if your residual income exceeds the regional requirement by at least 20%, it acts as a powerful compensating factor. This is especially helpful for those using remaining VA entitlement for a second home purchase.
The Kansas City Advantage
Because the Midwest has a more favorable cost of living than the West or Northeast coasts, Kansas City Veterans often find it easier to meet these requirements. However, items like childcare costs are a mandatory deduction in the VA formula. To see how these costs impact your specific case, visit our guide on VA Loan Closing Costs & Fees.
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