This article is part of LendingTree’s VA Mortgage section. Learn about VA home loans and how to use them to purchase your home or refinance your mortgage. VA mortgages have many unique characteristics, and these comprehensive articles are designed to provide veterans and their families with all the information they need.
VA mortgages are fully-documented, which means you’ll have to submit paperwork that allows underwriters to verify your income.NOTE: In community property states, the lender may request your spouse’s income information even if he or she isn’t purchasing the home with you or obligated on the loan.
In addition to signing an authorization allowing a lender to contact your employer, you may be asked to provide pay stubs covering your last 30 days of employment and W-2 forms covering your last two years of employment.
You generally can’t use income from employment unless you’ve been working for at least two years.There are a couple of exceptions to this rule:
- You’ve got at least a 12-month employment history and your employer indicates a high probability of continued employment on the VOE form.
- For those with less than 12 months, underwriters also look at your training and/or education and skills that relate to your current position. Examples include training in nursing or medicine, law, or information technology.
The VA says, “If the probability of continued employment is high based on these factors, then the lender may give favorable consideration to including the income in total effective income.”
Generally, income from self-employment may be used when the applicant has been self-employed for at least 2 years. Here’s what you’ll need to provide:
- Copies of last two years’ business and / or individual tax returns.
- The current year-to-date profit & loss statementand balancesheet.
- For partnerships and corporations, furnish a list of the primary owners and their percentage in the business.
- Taxable Income listed on the bottom of a corporate tax return (IRS Form 1120) may be divided by the veteran’s percentage of ownership and then used as additional income (subject to tax).
How is your self-employment income calculated? In general, you’ll take your taxable income and add back non-cash deductions like depreciation as well as extraordinary expenses that won’t recur. You’ll subtract windfall income that won’t recur. Normal business expenses that can be added-back to the net profit or bottom-line figures include depreciation, business interest, and amortization of organizational fees (corporations).
The two years income is then averaged, if your income increased from year one to year two. If it decreased, though, you get the lower year’s income – maybe even less if your industry or economy is shaky.
Other sources of income
You can use child support, alimony, or separate maintenance to qualify for your loan if you can prove that you’re entitled to it and that you receive it regularly.Income from a second job isn’t counted unless you have at least 24 months experience with working two jobs.
Overtime, bonus and part-time earnings that have been received for at least 1 year can be used to off-set intermediate term debts with less than 24 months remaining. For example, if you have 15 months left on a car loan and your payment is $300, and you’ve been earning $200 a month in overtime for at least a year, only $100 of your car payment will be counted in your debts.
Seasonal income may be used under special circumstances. It is important to document the past history and the likelihood it will continue.
Income from Worker’s Compensation, foster care, public assistance, Social Security, alimony, and child support may be considered if they have been verified as consistently paid and are likely to continue. Public assistance programs and Social Security must continue for a minimum of 3 years from the date of closing to be counted.
Temporary income such as VA educational allowances and unemployment compensation do not represent stable and reliable income and won’t be counted.
Commissions and bonuses
When at least “a major portion” of your income is from commissions, you have to have received it for at least two years for it to count. The VA does not define “major portion.” You’ll need your employer toindicate your year-to-date commissions, the basis for computing commissions, and how frequently commissions are paid.
Provide your last two years' income tax returns with W-2s and 1099-MISC Forms. If your income is in-creasing, you get the average of the last two years’ income. If decreasing, you get the lower year’s income – or less, if your industry or local economy is faltering.
Provide your Leave and Earnings Statement (LES). If your release date is within 12 months, you’ll need:
- Evidence that you have already re-enlisted or extended your period of active duty to a date 12 months beyond the date of loan closing OR
- proof of a valid offer of local civilian employment OR
- a statement that you intend to reenlist or extend active duty beyond the 12-month period PLUS a statement from your commanding officer confirming that you’re eligible to reenlist or extend active duty.
VA mortgages can demand a lot of experience and judgment from underwriters. That’s why it’s important to work with a VA-approved lender.