Using a VA Loan? What Counts as Income?
With its low-interest rates, no down payment requirements, and lower credit requirements, it can be easier to qualify for a VA loan than a conventional one. But even with all those benefits, qualifying for the mortgage you want can still be hard. The good news is that you may be able to use some of your other military benefits or other money coming in as income to help you qualify for your home.
VA loan lenders have three requirements for considering something income. It has to be reliable, stable, and likely to continue. Think of it this way, if you're likely to see that same amount (or close to it) go into your bank account every month for the foreseeable future, then it's probable income. If not, then you'll want to talk to your lender.
Here's an overview of some of the most common questions we see about VA loan income requirements.
Self Employment
Whether you started your own business after you got out of the military or if you just do some freelancing on the side, it's likely you consider that money as income. But does a lender? For anything that's not a salary, the magic number is typically two years. So, if you're a freelancer, own an investment property, or own your own business, you'll want to make sure you have documentation of everything you've earned over the past two years.
Benefits you can't use as income
Education benefits are always a big question...remember the rule? Reliable, stable, and likely to continue. Your education benefits meet the first two requirements, but not the last one. You're (hopefully) going to be finished with school in about four years. If you have a 30-year mortgage, that's 26 years that you can't count on your education benefits to help pay your mortgage. Sure, the goal is that your degree helps you land a good-paying job that ensures you can cover your mortgage no problem, but that's not income you can rely on today.
Benefits you can use as VA loan income
If you receive disability benefits from the military that money will count as income. That's because it's reliable, stable, and unless there are major changes within the VA, it's likely to continue. Depending on where you live there may also be state programs you can take advantage of when you're buying your home. For example, Florida's VA loan program has tax benefits for disabled veterans, which can reduce the amount of money you have to pay annually on your home.
Another benefit you might be able to count as income is your bonuses and commissions. Your lender will be looking to see if they've provided stable, reliable income that's likely to continue for the past two years. If that's the case, be sure to bring documentation of that income to your lender.
Your lender may also allow you to count your military allowances like subsistence and clothing, military quarters as part of your income.
If you're still active duty
If your contract with the military is up within 12 months of the close of your loan date, then proving your income might be a little tricky. Since your lender can see there's a set end date on your reliable and steady income, you'll need to prove that you have a concrete plan for what comes next. That's easy to prove if you plan on reenlisting--all you need to do is write a statement saying you plan on re-enlisting and include a letter from your commanding officer stating that you're eligible to reenlist. But if you're planning on retiring from military life, you'll prove that you'll have a job and a salary when you get out. If you already have something lined up, you'll just need your employer to write a letter stating that you will be working for them and the salary you've been promised.
Other types of income
If you're a military member who's receiving alimony or child support, you can also count these as income. But remember, these types of payments work both ways. If you're on the receiving end, they count as income. If you're on the giving end, they may reduce your income.
Still have questions? Get the facts about VA loans. Then utilize our handy VA Loan Calculator to determine what your monthly payment might look like.