Income and employment are two basic elements in securing a home loan. But don’t let your assumptions about what is required discourage you from pursuing a VA loan, because the agency’s requirements allow for some flexibility in assessing both.
When it comes to employment, the VA and VA approved lenders are looking for stability, consistency and a likelihood that those conditions will continue. The gold standard is two years of steady employment.
But the real world is rarely that tidy.
Prospective borrowers don’t always have two years of steady employment. That doesn’t mean they’re immediately disqualified from securing a loan.
Recently discharged veterans may have held a job for just weeks or months before deciding to pursue a VA-guaranteed home loan. It’s often a case-by-case basis that tests the patience and flexibility of an underwriter. Will they keep their job and a steady stream of income flowing? Do they have any employment experience or expertise beyond their military training?
This is where a letter of explanation from either the veteran or an employer can make a huge difference for many borrowers. Prospective borrowers who are working in a field that utilizes their skill set or previous work in the military can often overcome that shortfall in terms of time on the job.
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.
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.
For commission-based workers, the longer you’ve been employed the better. The VA will rarely guarantee a loan for veterans who’ve been generating that income for less than two years. Anything short of that is generally considered unstable income, given the nature of commissions and sales-based jobs. There are some rare exceptions when the veteran has either previous related employment or some type of specialized training. But today anything short of that two-year benchmark is a tough sell.
The same typically holds true for self-employed veterans. Fledgling entrepreneurs in business less than two years usually can’t count that income as stable and reliable. As always, there are a few exceptions, but otherwise newly self-employed veterans will need additional sources of stable income in order to satisfy the VA and most lenders.
Basic Allowance for Housing and some other military allowances can be also included as income, so long as there’s a track record and that stability is likely to continue.
A VA loan is a mortgage option issued by private lenders and partially backed, or guaranteed, by the Department of Veterans Affairs. Here we look at how VA loans work and what most borrowers don’t know about the program.
VA loans allow Veterans to have a co-borrower on the loan. Here we break down co-borrower requirements and provide common scenarios around co-borrowing and joint VA loans.