If the RI is still short after compensating factors are applied, the lender may require a LESA or the applicant may not qualify at all. Such factors can include income from other sources, unused proceeds available in the reverse mortgage after closing, available cash in retirement accounts or savings, etc. What happens if the income comes up short because of high debt or low income? It’s still possible to qualify, but the applicant will need to document one or more compensating factors. As you can see, this couple clearly meets the reverse mortgage residual income requirements. Residual income is calculated by calculating the total monthly income from all sources for the mortgagors obligated on the mortgage, and subtracting from that. After the property charges, debt payments, and estimated maintenance and utilities are backed out, they are left with $1563.28 in disposable income.īased on Figure 1, a household size of 2 in the South region needs to have at least $886/month in disposable income to qualify. Residual income is a calculation that estimates the net monthly income after subtracting out the federal, state, local taxes, (proposed) mortgage payment. Let’s also assume this couple lives in Texas, which is in FHA’s South region.įigure 2 shows a breakdown of their monthly expenses. Let’s assume we’re working with a couple who lives in a 1,168 square foot home and has $2,125/month in total Social Security income. Question: Calculator Residual Income Washington Company has two divisions: the Adams Division and the Jefferson Division. Let’s look at an example of a residual income calculation. The remaining residual income must meet a certain threshold based on region and the number of people living in the home.įigure 1 shows the required thresholds by region and household size. Utility and maintenance costs are estimated based on the region and square footage of the home. Residual income is calculated by adding up monthly income and deducting debt payments (excluding mortgage payments to be eliminated by the reverse mortgage), monthly property charges, and an estimate of utility and maintenance costs. A LESA can be avoided if an applicant can document certain compensating factors that make up for the income shortfall. If one or more compensating factors cannot be documented, a LESA may be required or the applicant may not qualify at all (depending on the seriousness of the income shortfall). If an applicant doesn’t meet the income standards, the lender may require a life expectancy set-aside (LESA). Often referred to as the bottom line on the income statement, net income represents a companys residual profitability, inclusive of all expenses incurred. Residual income was implemented with the new financial assessment guidelines rolled out in 2014. It’s important because it helps lenders determine if an applicant has the financial ability to pay their property charges. So what are the requirements? How does residual income work? Why is it important? Business Residual Income Calculatorįollowing is the business residual income formula on how to calculate residual income.īusiness Residual Income = Net Operating Income - Minimum Required Return * Cost of Average Operating Assets Personal Residual Income Formulaįollowing is the personal residual income formula on how to calculate personal residual income.The reverse mortgage residual income (RI) requirements are a key component of the FHA reverse mortgage lending requirements. Calculate residuals from multiple processors reports at the same time. The residual income formula is shown below on how to calculate residual income for personal and business income.īusiness residual income is the net operating income of a department whereas personal residual income is your monthly income after paying off your debt. Agent residual income calculations delivered accurately in minutes instead of days. RI Formula RI Net Income Equity Charge Simply put, the residual income is the net profit that’s been altered depending on the cost of equity. Save my name, email, and website in this browser for the next time I comment. Factors that are included in the VA Residual Income calculation are, but not limited to: VA Residual Incomes by Geographic Region for loan Amounts 79,999 and. Residual Income Calculator to calculate the residual income. Online Calculators > Financial Calculators > Residual Income Calculator
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