VA Loan - Income Guidelines

What Sources of Income Are Acceptable for VA Home Loans?

It only makes sense that the VA requires the veteran to have sufficient income to cover the repayment of the loan. For a veteran to qualify for a VA home loan, the lender must verify the income, and the stability of the income must be analyzed.

VA requires verification of income for the previous two years. The income must also be expected to continue for the first 3 years of the loan. Any gaps in employment must be explained and be for an understandable reason. School and/or technical training for the veteran's profession can be counted toward the two year requirement, provided the veteran is currently employed in their field of training.

Retirement income, including SS benefits, military retirement, disability, pensions, etc., may be used toward qualifying provided they continue at least 3 years beyond the closing date.

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Following is a summary of different forms of income and the VA’s guidance regarding use of each income.

Salary or W2 Income - Based on current pay rate using the current month's pay-stubs.

Overtime or Bonus Income - May be used to qualify if it has been received for the last 2 years and the employer verifies that it is likely to continue. A two-year average will be used to determine the amount that can be included in the current wages. If the bonus or overtime is declining substantially, it may not be allowed.

Part-time Income or Second Job - May be used as long as a 2-year history is verified and the income has and will continue to be steady.

Commission Income - Must be averaged over the prior 2 years. A veteran who receives commission income will be required to provide their previous 2 years Federal tax returns, and un-reimbursed employees expenses will be subtracted from the income.

Retirement/SS/Disability Income - Must be documented and evidenced that it will continue 3 years beyond closing.

Alimony/Child Support/Separate Maintenance - These incomes need not be disclosed unless needed for qualifying purposes. If a veteran chooses to use one or more of the incomes, they must show evidence that the source of income has a history of paying the debt for the prior 12 months. The veteran must also prove that the income will continue for 3 years after closing. This may require providing divorce decrees, settlement agreements, birth certificates, etc.

Notes Receivable - VA will require a copy of the note and evidence of payments received for the last 12 months. Evidence that the payments continue for 3 years after closing will be required.

Interest/Dividends - May be used as long as documentation shows a two-year history of receipt, and it is likely to continue.

Rental/Boarder Income - Income from investment properties may be used. If the property has been owned for more than 2 years, the veteran will be required to provide the previous 2 year's Federal tax returns. The income will be calculated based on rent received minus expenses, averaged over the prior two years. If the property has been owned less than 2 years, the income is based on calculating 75% of the rents received minus the mortgage payments.

Self-Employed - A veteran who receives 1099 income or owns more than 25% of a business is considered self-employed. Self-employed borrowers must show evidence of self-employment for 2 years. Self-employed borrowers must furnish the prior 2 year's Federal tax returns with all schedules. Self-employed borrowers with a 25% or more ownership will also be required to provide business tax returns for the previous 2 years.

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