A Primer on VA Loans and Income

Service members don’t have to hit any kind of income threshold to capitalize on the home lending benefits earned by their service.

There’s also no type of cap. Whether the salary is $25,000 per year or $2.5 million, qualified borrowers have equal access to the VA Loan Guaranty program.

But that doesn’t mean that everyone who meets the eligibility requirements gets a loan.

VA-approved lenders have to make sure prospective borrowers have enough stable, reliable income to meet their monthly expenses, including a new mortgage payment.

Stable Streams

Lenders look for stable, consistent income streams from prospective borrowers.

The goal is to verify the income is sufficient to meet:

• The mortgage payment
• Other shelter expenses
• Debts and obligations
• Family living expenses

VA lenders are generally looking for at least two years of stable employment and income from the same employer and job type. That’s a golden benchmark.

Job-hopping can sometimes prove problematic, or at least worrisome to lenders. People do change careers. But underwriters are going to look for some kind of continuity between positions, and even then borrowers still might face some serious questions.

But it’s not always feasible. And there are situations where qualified borrowers can satisfy the VA and a lender with less.

One-Two Punch: Income and Credit

Reliable, documented income can be included from a host of sources, including:

• Base pay & allowances
• Non-military employment
• Retirement income
• Self-Employment
• Commissions
• Rental income
• Spouse’s income, if the spouse will be contractually liable
• Alimony/child care

Again, though, the key with these income streams is consistency and reliability. To count income from overtime work, part-time jobs, second jobs and bonuses, the veteran needs to show that same two-year period of stability.

Veterans who are self-employed or who make a living in the building trades, doing seasonal work or working mostly on commission have some additional paperwork hurdles to face. Tax returns for the previous two years will be essential in verifying income.

Lenders will use income figures to compute a debt-to-income ratio, or DTI ratio, that expresses the ratio between your monthly expenditures and your monthly take home. We’ll cover DTI and its complement, residual income, more fully elsewhere.

It’s also important to remember that income isn’t everything.

The VA also wants a borrower to be a “satisfactory credit risk,” but, as with income, the agency doesn’t actually have a strict credit standard.

But VA lenders certainly do. In today’s lending climate, borrowers without a score of least 640 could struggle to secure financing. But remember that credit score benchmarks can vary by lender, loan type and other factors.