Definition
Residual income is monthly income remaining after paying all housing and debt obligations. Strong residual income indicates financial cushion and can serve as a compensating factor for higher debt ratios.
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Strong residual income shows ability to handle financial emergencies. Can be compensating factor for higher debt ratios.
Pro Tip
Strong residual income improves loan approval odds even with higher debt ratios.
Example
$10,000 monthly income minus $2,000 debt payments leaves $8,000 residual income.