source:
  type: guide
  id: hud-4000-1-ii-f-residual-income-analysis
  authority: FHA Single Family Housing Policy Handbook 4000.1, Part II — f. Residual
    Income Analysis (04/29/2024)
  description: FHA Single Family Housing Policy Handbook 4000.1, Part II — f. Residual
    Income Analysis (04/29/2024).
  coverage_tier: operative
obligations:
- id: hud-4000-1-ii-f-residual-income-analysis-full
  canonical_id: hud-4000-1-ii-f-residual-income-analysis-full
  section: FHA Single Family Housing Policy Handbook 4000.1, Part II — f. Residual
    Income Analysis (04/29/2024)
  type: do
  tags:
  - regulator-direct
  - fha
  - hud-handbook
  - corpus-expansion
  - tier-operative
  primary_source:
    tier: 1
    authority: FHA Single Family Housing Policy Handbook 4000.1, Part II — f. Residual
      Income Analysis (04/29/2024)
    source_class: hud-handbook
    source_url: https://www.hud.gov/hud-partners/single-family-handbook-4000-1
    snapshot_id: 8c03836f77f317e1
    fetched_at: '2026-05-23T00:28:40Z'
    content_hash: sha256:411430f29b13f9b54a2ebb0e6f6e7087ecd2b90d0da22eb0c8c792eaa2d7d0df
    paragraph_quote: 'f. Residual Income Analysis (04/29/2024) i. Definition Residual
      Income refers to the total monthly Effective Income from all sources described
      in Effective Income Analysis for the Borrowers obligated on the Mortgage, minus
      the total monthly expenses from all sources described in Monthly Expense Analysis
      for the Borrowers obligated on the Mortgage. ii. Standard The Borrower must
      have Residual Income at least equal to the applicable amount for the Borrower’s
      family size and geographic region on the Table of Residual Incomes by Region.
      Where a Borrower’s Residual Income is less than the applicable standard, see
      the Residual Income Shortfall section. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
      B. Title II Insured Housing Programs Reverse Mortgages 5. Performing the Financial
      Assessment of the Borrower Handbook 4000.1 669 Last Revised: 11/26/2025 (A)
      Calculating Family Size Count all members of the household, without regard to
      the nature of the relationship, when determining family size, including an Eligible
      NBS and Other Non-Borrowing Household Members. (1) Reducing Family Size An Eligible
      NBS or Other Non-Borrowing Household Member may be eliminated from family size
      provided that: • they authorize the Mortgagee to collect information on their
      Effective Income and Monthly Expenses; • they provide consent to the Mortgagee
      to verify their SSN and obtain tax verification forms; • the Mortgagee meets
      the requirements associated with the Privacy Act; and • the excluded household
      members’ Residual Income meets the standard for a one-person family size. (2)
      Limitations on the Use of the One-Person Family Size The one-person family size
      may only be used for a Borrower where: • the RLARM indicates that the Borrower
      is single or unmarried; • for Borrowers required to file Tax Returns: • the
      results of an IRS Form 4506-C, or verification or copies of Tax Returns confirm
      that the Borrower files as a single person; or • for Borrowers not required
      to file Tax Returns: • the property title, credit report, or other information
      supports the marital status claimed by the Borrower; and • the Borrower identifies
      as unmarried in the certification regarding marital status. This documentation
      is not required where the Eligible NBS or Other Non- Borrowing Household Member
      has been excluded from family size based on the criteria defined in this section.
      (3) Residual Income of Eligible Non-Borrowing Spouse Used as Compensating Factor
      If income from an Eligible NBS is cited as a Compensating Factor, the Mortgagee
      may not eliminate the Eligible NBS when calculating family size. See Reducing
      Family Size. Where income from an Eligible NBS will be used as a Compensating
      Factor or to reduce family size, the Eligible NBS must also be required to sign
      the appropriate IRS form to obtain Tax Returns directly from the IRS. II. ORIGINATION
      THROUGH POST-CLOSING/ENDORSEMENT B. Title II Insured Housing Programs Reverse
      Mortgages 5. Performing the Financial Assessment of the Borrower Handbook 4000.1
      670 Last Revised: 11/26/2025 (B) Required Documentation To reduce family size,
      the Residual Income for the Eligible NBS or Other Non- Borrowing Household Member
      must meet the same documentation and verification standards as required for
      the Borrower’s Effective Income Analysis, Monthly Expense Analysis, and Residual
      Income analysis. Imputed income from asset dissipation may not be included.
      iii. Table of Residual Incomes by Region To determine the Residual Income standard,
      Mortgagees must select the applicable family size and region from the table
      below. Table of Residual Incomes by Region Family Size Northeast Midwest South
      West 1 $540 $529 $529 $589 2 $906 $886 $886 $998 3 $946 $927 $927 $1,031 4 or
      more $1,066 $1,041 $1,041 $1,160 The regions on the Table of Residual Incomes
      by Region include the following states: Region States Northeast CT, MA, ME,
      NH, NJ, NY, PA, RI, VT Midwest IA, IL, IN, KS, MI, MN, MO, ND, NE, OH, SD, WI
      South AL, AR, DC, DE, FL, GA, KY, LA, MD, MS, NC, OK, PR, SC, TN, TX, VA, VI,
      WV West AK, AZ, CA, CO, HI, ID, MT, NM, NV, OR, UT, WA, WY iv. Residual Income
      Shortfall Where a Borrower’s Residual Income is less than the applicable standard,
      the underwriter must document that the Borrower satisfies one of the criteria
      below. The Borrower: • effectively meets the applicable Residual Income standard
      with the use of one or more acceptable Income Compensating Factors; or • meets
      the standard for citing one or more Non-income Compensating Factors. If the
      Borrower does not meet the criteria above, then the Mortgagee must require a
      Partially Funded LESA. Extenuating Circumstances may not be used to compensate
      for a Residual Income shortfall. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
      B. Title II Insured Housing Programs Reverse Mortgages 5. Performing the Financial
      Assessment of the Borrower Handbook 4000.1 671 Last Revised: 11/26/2025 v. Acceptable
      Compensating Factors (A) Definitions Compensating Factors refer to factors that
      may be used to justify approval of HECMs where the Borrower does not meet the
      Residual Income standard. Income Compensating Factors refer to income from the
      following sources: (1) Overtime, Bonus, or Tip Income or Seasonal and Part-Time
      Employment; (2) Eligible NBS income; (3) expected SSI or pension income; and
      (4) imputed income from the HECM. Non-income Compensating Factors refer to other
      Borrower financial characteristics and include the following: (1) property charge
      payment history, (2) access to other credit, (3) assets equal to Projected Life
      Expectancy Property Charges, and (4) HECM sufficient to pay off debts. (B) Standard
      When citing a Compensating Factor, the Mortgagee must document the applicable
      requirements below. (1) Income Compensating Factors Mortgagees may combine one
      or more income Compensating Factors. To use income Compensating Factors, the
      Mortgagee must verify the cited income Compensating Factor(s) will result in
      the Borrower effectively meeting the Residual Income standard. If applicable,
      the Mortgagee must take into consideration the impact of a Fully Funded LESA
      that may effectively reduce the Borrower’s monthly expenses when determining
      whether the Borrower will effectively meet the Residual Income standard. Mortgagees
      may not use income Compensating Factors to reach 80 percent or more of the Residual
      Income standard in order to cite non-income Compensating Factors. (a) Overtime,
      Seasonal, Part-Time, Bonus, or Tip Income To cite Overtime, Bonus, or Tip Income,
      or Part-Time or Seasonal Employment that is not reflected in Effective Income
      as a Compensating Factor, the Mortgagee must verify and document that the Borrower
      has received this income for at least six months, and it will likely continue.
      Overtime, Bonus, or Tip Income, or Part-Time or Seasonal Employment from an
      Eligible NBS may not be used for this Compensating Factor. II. ORIGINATION THROUGH
      POST-CLOSING/ENDORSEMENT B. Title II Insured Housing Programs Reverse Mortgages
      5. Performing the Financial Assessment of the Borrower Handbook 4000.1 672 Last
      Revised: 11/26/2025 (b) Eligible Non-Borrowing Spouse Income To cite income
      from an Eligible NBS that is not reflected in Effective Income as a Compensating
      Factor, the Mortgagee must: • verify and obtain the Eligible NBS’ signature
      on the appropriate IRS form to obtain Tax Returns directly from the IRS; and
      • verify and document that the Eligible NBS has received this income for at
      least six months, and it will likely continue. (c) Expected SSI or Pension Income
      To cite income from Expected SSI or Pension that is not reflected in Effective
      Income as a Compensating Factor, the Mortgagee must verify and document that
      the Borrower has received an award letter stating that the Borrower will begin
      receiving Pension or SSI within the next 12 months. (d) Imputed Income from
      HECM To cite Imputed Income from a HECM that is not reflected in Effective Income
      as a Compensating Factor, the Mortgagee must verify and document the additional
      income that would result from dissipating available HECM proceeds remaining
      after closing, based on the original Principal Limit less any required Repair
      Set-Aside, LESA, Servicing Fee Set-Aside, and Disbursements for Mandatory Obligations.
      (2) Non-income Compensating Factors To cite non-income Compensating Factors,
      the Mortgagee must determine that the Borrower’s Residual Income is 80 percent
      or more of the applicable Residual Income standard and document that the specific
      criteria described for the individual Compensating Factor have been met. (a)
      Property Charge Payment History To cite property charge payment history as a
      Compensating Factor, the Mortgagee must determine that: • the Borrower has paid
      their own Property Charges directly for at least the last 24 months (i.e., the
      Property Charges were not paid by a Mortgagee from an escrow account or by another
      party) and meets the standard in Satisfactory Property Charge Payment History;
      • the Borrower has made all property charge payments without incurring penalties
      during the last 24 months; and • the Borrower’s current income is not less than
      the income during the previous 24 months. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
      B. Title II Insured Housing Programs Reverse Mortgages 5. Performing the Financial
      Assessment of the Borrower Handbook 4000.1 673 Last Revised: 11/26/2025 (b)
      Access to Other Credit To cite access to other credit as a Compensating Factor,
      the Mortgagee must determine that: • the Borrower’s housing payment for the
      Property to secure the HECM is the only open account with an outstanding balance
      that is not paid off monthly; • the credit report shows established credit lines
      in the Borrower’s name open for at least six months; and • the Borrower has
      paid off all these accounts and credit lines in full monthly for at least the
      past six months. Borrowers who have no established credit other than their housing
      payment, who have no other credit lines in their own name open for at least
      six months, or who cannot document that all other accounts are paid off in full
      monthly for at least the past six months do not qualify under these criteria.
      Credit lines not in the Borrower’s name but for which they are an authorized
      user do not qualify under these criteria. (c) Assets Equal to Life Expectancy
      Property Charges To cite assets equal to life expectancy property charges as
      a Compensating Factor, the Mortgagee must determine that the Borrower has assets
      (excluding HECM proceeds) equivalent to the Projected Life Expectancy Property
      Charges that were not dissipated or considered in the Residual Income calculation.
      (d) HECM Sufficient to Pay Off Debts To cite HECM sufficient to pay off debts
      as a Compensating Factor, the Mortgagee must determine that HECM proceeds remaining
      after closing (based on the original Principal Limit less any required Repair
      Set-Aside, LESA, Servicing Fee Set-Aside, and Disbursements for Mandatory Obligations)
      that were not dissipated and counted as income are sufficient to pay off revolving
      and installment debt, including revolving and installment accounts in collection,
      that would reduce monthly payments to the extent that Residual Income would
      meet the Residual Income standard.'
  judgment: false
