How to Calculate Maintenance & Utilities on a VA Loan

How to Calculate Maintenance & Utilities on a VA Loan
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Monthly maintenance and utilities expense is a financial metric that's unique to VA loans. It's calculated by multiplying your home's square footage by 14 cents. If your maintenance and utilities expenses are too high relative to your gross income, you may not qualify for a VA loan.

Maintenance and Utility Expense in VA Loans

Unlike other home loans, the VA uses an automated underwriting analysis to determine if a veteran meets the qualifications. Because the VA is guaranteeing the loan, the agency uses income and expense data to ensure that the applicant has sufficient income to repay the loan along with other debt obligations and day-to-day expenses.

There are two important metrics that lenders look at in the VA underwriting analysis. The first is a debt ratio calculation -- sometimes called DTI -- and the second is residual income. Residual income equals gross income less maintenance and utility expense and other monthly shelter expenses.

If residual income isn't higher than current minimum requirements, you may not qualify for the loan. Exact requirements vary based on family size and region. As a general rule, though, residual income has to be at least $740 for a family of two to qualify as of August 2015.

Tip

To avoid surprises later in the approval process, you can fill out a loan worksheet like this one from LoanTrainer.com to determine your residual income before you apply.

Calculating Monthly Maintenance and Utilities

To calculate maintenance and utility expense, follow these steps:

  1. Determine the square footage of your home. Only include the livable areas and rooms in the square footage. Basements are excluded from square footage as are garage areas. Enclosed porches are included in the square footage as long as they are heated and heated attics that have walls of at least five feet high also can be included. This information is listed on the property's publicly available tax records and listing sheets. The VA appraiser that appraises the home can verify this information for you in an appraisal report.
  2. Multiply the square footage by the VA's predetermined allowance of 14 cents per square foot to find maintenance and utilities cost. For example, if your home is 1,600 square feet, your maintenance and utilities cost is $224 per month.