Which type of loan application requires a residual income analysis to be performed?

The correct answer is that a VA loan requires a residual income analysis to be performed. This analysis is a specific requirement for loans backed by the Department of Veterans Affairs, aiming to ensure that veteran borrowers can afford their monthly mortgage payments while also maintaining a reasonable standard of living.

Residual income is the amount of money that remains after all monthly debts and obligations have been paid. The VA establishes minimum residual income standards based on family size and geographic location to gauge whether the borrower has sufficient income left for living expenses once housing-related costs and debts are accounted for. This approach helps protect veterans from overextending themselves financially.

In contrast, other types of loans like FHA, Jumbo, and Conventional loans do not mandate a residual income analysis as part of the underwriting process. These loans may focus on different lending criteria, such as credit scores or debt-to-income ratios, rather than specifically assessing the residual income left after all debts are paid. This distinction is crucial for understanding the requirements and protections offered by VA loans specifically designed for veterans and active military personnel.