Residual income is HUD’s leftover-budget test on a HECM. Mortgagee Letter 2014-21, Mortgagee Letter 2014-22, and the HECM Financial Assessment and Property Charge Guide tell underwriters to compare monthly residual funds to a table by region and household size. Jay Zayer, a CRMP licensed in California and Arizona, sees more files decided by that table and by tax history than by a credit-score headline.
There is no published FICO minimum in 24 CFR Part 206. Thin residual income still matters. A LESA can close some shortfalls. It cannot be created after closing.
What counts as residual, and what does the table actually compare?
Underwriters start with stable income: Social Security, pensions, documented rents on other units of a 2–4 family you occupy, and other acceptable streams. They subtract monthly debts, maintenance-and-utilities allowances, and property charges the LESA will not cover. The remainder is residual income. HUD’s table then asks whether that remainder is enough for that region and family size.
Walk through the order, not a guessed dollar floor: (1) occupancy and age, (2) property type, (3) title, (4) residual-income worksheet, (5) credit and property-charge history, (6) LESA yes/no. Quoting a blog’s “minimum Social Security” as a HUD floor is how people skip step four. The Guide’s tables are the floor. They change only when HUD republishes them. This page will not invent a current cell.
HOA dues often stay outside a tax-and-insurance LESA. California high-rise assessments and Arizona garden dues fail residual income for different reasons. Maintenance allowances still apply on a free-and-clear house.
See leftover cash after a LESA before you treat a thin residual-income pass as a large check.
When does a LESA replace a residual-income fail, and when does it not?
A fully funded LESA withholds estimated taxes and insurance (and other charges the worksheet includes) for HUD’s life-expectancy term. A partial LESA appears when residual income covers part of the gap. Exemptions exist for some low-risk profiles in the Guide. Most owner-occupied files still run the review.
A LESA does not pay grocery bills. If residual income fails because the household cannot live on Social Security after the mortgage payment is gone, eliminating the first-mortgage coupon can be the whole point — run the worksheet both before and after that payoff. If the leftover budget still fails and a LESA would swallow the proceeds, the HECM is the wrong tool.
See financial assessment for credit history versus residual income. See LESA for what dollars freeze.
Credit-card minimums, auto leases, and court-ordered support still hit the worksheet. Paying those off with HECM proceeds can change residual income, subject to 24 CFR 206.25 first-year disbursement limits. That is a plan, not a promise the table will then clear.
Who fails residual income even with equity?
A household whose property charges and HOA already exceed residual income, with a LESA so large that usable proceeds are a token after 2.00% initial MIP (Mortgagee Letter 2017-12). A household originating to fund a lifestyle the leftover budget cannot support. A household with chronic tax default that also misses the table. Jay will say to sell, to downsize, or to cut the other debts rather than originate a decorative line.
What can go wrong: the worksheet uses last year’s cheaper insurance, then FAIR Plan binds at triple, and residual income that passed last month fails this month. Another failure: counting a child’s informal cash as income HUD will not document.
Documented rental income on a 2–4 unit you occupy is not the same as a child’s promise to “help with the bills.” HUD wants leases and deposits, not family texts. Imputed income from a boarder without a lease is how worksheets get kicked back.
Who this does not help: a household that passes residual income only by omitting the HOA. The Guide still counts charges you actually owe. A high-rise assessment that is “going to be voted down” is still the current dues until the board records a different number.
A follow-up: if residual income is strong, can you skip counseling? No. 24 CFR 206.41 is independent of the table. California Civil Code section 1923.2 still adds the seven-day wait. A fat leftover budget does not waive occupancy (24 CFR 206.39).
Social Security COLA raises can help next year’s residual income. They do not rewrite this year’s table. If you are two months from a COLA and the worksheet fails today, either wait with a live counseling certificate or use a LESA if that is the honest close. Do not invent next year’s income on this year’s 1003.
Alimony or support you pay is an expense. Support you receive needs the documentation HUD will accept. Informal family help is not residual income. Put it in writing or leave it off the worksheet.
Seasonal work, required minimum distributions, and pension survivor elections can all change residual income after closing. HUD does not rerun the origination table when they do. If the new stream is the only reason the file would pass, wait until it is documented. A promised pension letter is not a deposit.