Guide to ETS & VA Loans

For active military, the decision to re-enlist or separate from the service is colored by a host of important factors. Your Expiration of Term of Service (ETS) date is also a key milestone when it comes to your VA loan benefit.

For service members who already own a home, choosing to re-enlist or separate can bring both opportunities and challenges. It’s important to understand how your decision can impact your VA loan options.

That’s what this guide is all about.

First, we’ll look at a few key considerations regardless of whether you’re re-enlisting or separating.

Next, we’ll focus on VA loan impacts for re-enlisting service members.

Then, we’ll take a closer look at what separating service members need to know.

Finally, we’ll talk about in-between cases when service members want to buy within 12 months of their ETS date.

One of the biggest misconceptions about VA loans is that you can use them only once. The reality is this is a lifetime benefit you can use over and over again. It’s even possible to have more than one VA loan at the same time.

Something called VA loan entitlement is the key to understanding how this works.

The VA basically insures a portion (typically a quarter) of every loan it makes. That insurance is reflected in a dollar amount known as entitlement.

How much entitlement you have depends in part on where in the country you’re buying. Every time you buy a home with your VA loan benefit, you’re using part of your entitlement.

Whether you’re re-enlisting and PCSing, or separating and relocating, it’s possible to keep and rent out your current home and buy again, often with little to nothing down. Policies on converting primary residences to rental properties can vary by lender.

Generally, you shouldn’t expect to count the projected income from your new rental property toward your next mortgage. You’ll usually need a two-year history of receiving that kind of income to be able to count it. But you may be able to essentially cancel out that monthly expense and qualify with just the new mortgage payment if you can get a renter locked into a lease.

If owning an investment property doesn’t sound like a good fit, service members can also look to sell their current home, repay the original VA loan in full and then fully restore their entitlement for a new purchase.

Learn more about how to keep your current home and buy again with your VA loan benefit:

Understanding Second Tier Entitlement on VA Loans

Learn more about selling your home and buying again with your full entitlement:

How Restoration of Entitlement Works for VA Loans

Service members can also refinance their current mortgage using their VA loan benefit. There are two primary VA refinance options – the Interest Rate Reduction Refinance Loan (IRRRL), and the Cash-Out refinance.

There are a couple of key differences between them.

Homeowners wanting to get cash from their home’s equity would need to use the Cash-Out option, which includes the same kind of fees and credit, income and underwriting guidelines as a typical VA purchase loan.

VA homeowners who want only a lower interest rate or to get out of an adjustable-rate loan can do that with an IRRRL, which has easier guidelines and minimal costs. Service members can be eligible for an IRRRL regardless of whether they’re re-enlisting or separating.

But Cash-Out refinances can be more difficult if you’re re-upping and PCSing, or if you’re separating and relocating, because they come with occupancy requirements. Homeowners would need to intend to live in the home to be eligible, and that’s not always doable if you’re PCSing or separating.

Learn more about VA refinance options:

VA Interest Rate Reduction Refinance Loans (IRRRL)

VA Cash-Out Refinance Loans

Next, we’ll look at VA loan impacts for service members who plan to re-enlist.

Re-enlisting service members can have a more streamlined path to using or reusing their VA loan benefit because there’s certainty regarding income and employment. Choosing to re-up means lenders can easily document your earnings and be confident that your income is stable and likely to continue.

Service members who are PCSing after re-enlistment can look to rent out their current home and purchase again at their new duty station using their VA loan benefit. Lenders will need to check your Certificate of Eligibility and learn more about where you’re PCSing to best evaluate your entitlement situation and how much you can borrow before needing to factor in a down payment.

Service members eligible to receive Basic Allowance for Housing (BAH) can use it to help cover some or all of their mortgage payment. BAH levels vary based on location, pay grade and dependent status. It can be a powerful homebuying tool for service members who qualify.

Check out our article on BAH to learn more:

Using Basic Allowance for Housing (BAH) on VA Loans

BAH rates can change every year, but yours can’t decrease unless you experience a change in duty station, pay grade or dependent status.

Re-enlisting service members who aren’t relocating might have a tougher time buying a new home in the same area. VA loans have occupancy requirements, meaning you have to intend to live in the home as your primary residence.

Lenders will want to know more about your reasons for buying a new home in the same community. They want to make sure borrowers aren’t trying to use the VA loan program to build a portfolio of investment properties.

Generally, expect questions from your lender if you haven’t experienced family or financial changes that would make a new home purchase likely. To be sure, it’s absolutely possible to purchase again in the same community. But these are always a case-by-case evaluation.

For service members transitioning back to civilian life, getting another VA loan can require additional planning.

The big question for lenders is: How will you pay the bills once you’re no longer in the military?

But it’s also not just a matter of having sufficient income post-separation. Lenders also want to feel confident that your income stream is stable, reliable and likely to continue. They’ll take a long, hard look at the type of work you’ve got lined up and how it relates to your MOS, your previous work history and your education.

This idea of employment continuity is key to using your VA loan when you’re separating from the service.

Service members wanting to purchase or refinance near or soon after ETS will need a job lined up unless they can use retirement income, which we’ll talk about shortly. You won’t be able to count your military pay or GI Bill housing allowance as effective income.

Service members can stand a better chance when their new civilian work is basic, full-time W-2 income paid either hourly or salary. Some career fields and jobs can be more challenging than others from a continuity perspective.

For example, there’s pretty clear continuity when an ETSing military police officer takes a job with a local police department. In this kind of scenario, lenders might be willing to move forward right away with a new VA loan, even before the service member has left the military (more on that later).

Things might look different if that MP is transitioning out of the military to take a sales or computer programming job. In that case, the veteran could need a year or more on the new job before lenders will consider their income for a new loan.

Generally, any of these job types can create income stability challenges for transitioning service members:

• Self-employment
• Part-time employment
• Commission-based employment
• Trucking industry

Guidelines for employment continuity, job gaps, and job changes can vary by lender. Generally, veterans will need a two-year history of self-employment, part-time or commission-based income to satisfy lenders.

If you’re separating from the service and heading into retirement, you can often move forward on a new VA loan right away, even before you ETS.

Lenders will need some official documentation and likely compare your current income to your retirement income for qualification purposes. Guidelines and policies can vary.

Check out our article on using retirement income to learn more:

Qualifying for a VA Loan Using Retirement Income

Veterans using their Post 9/11 GI Bill benefit may be able to tap into a monthly housing allowance that’s similar to BAH.

But there’s one critical and often frustrating difference – lenders cannot count this as income to help you qualify for a VA mortgage.

Educational housing allowances are not considered stable, reliable income that’s likely to continue. The VA considers this temporary income.

We’ve focused this guide on using your VA loan benefit after your ETS date. But there are similar considerations for active duty service members wanting a VA loan within one year of ETS.

In these cases, lenders will want to know more about your income and employment situation, just like they would if you were purchasing after ETS.

Continuing your military service means your employment and income will continue, and that’s incredibly important.

Service members who plan to re-enlist may need to provide:

• Documentation that you’ve already re-enlisted or extended your period of active duty beyond that 12-month period following the projected loan closing.
• A statement that you intend to re-enlist or extend the period of active duty, along with a statement from your commanding officer confirming you’re eligible to do this. The CO must also make clear that there’s no reason to believe your re-enlistment or extension won’t be granted.

The bottom line is loan officers will want to see something official they can trust. The specific requirements may vary depending on the lender.

Generally, once you’re able to provide these kinds of documents you can move forward with the VA mortgage process.

Otherwise, if you’re unsure about your plans or if you know you will be separating, lenders will need to know more about your future income and employment situation in order to approve you for a loan within 12 months of ETS. Section 3 of this guide has more information for those scenarios.

Every service member’s ETS picture is different. Talk with your Veterans United loan team to learn more about how your ETS can affect VA home loan benefit.