Veterans and service members can look to qualify for a VA home loan using retirement income. Lenders may take varying approaches to how this works in practice.
Let’s take a look at a few different scenarios involving retirement income.
Retiring from Military or Civilian Career
Military members preparing to retire from service may be able to count their pending retirement income toward loan qualification, even before their retirement fully takes effect.
At Veterans United, we would typically need to have your official start date and exact retirement pay in writing. Lenders may be able to verify the rate of pay with a signed statement from the service member’s commanding officer or through a Defense Department retirement income calculator. You would qualify based on the lesser of either your current full-time income or your retirement income.
In addition, you may need cash reserves available depending on the length of time between your last full-time paycheck and your first retirement payment. Lenders may have a limit for how many days they’ll allow in order to count pending retirement income.
The above is generally true for veterans who are retiring from their civilian career.
Counting Current Retirement Income
If you’re already receiving retirement income, lenders can look to count that toward mortgage qualification. Guidelines and requirements can vary by lender.
Generally, at Veterans United we’ll typically need to:
- Verify the retirement income through bank statements, awards letters or IRS Form 1099-R documents for the past two years
- Determine that your retirement income is likely to continue for at least three years
Veterans can look to utilize retirement income from an employer as well as Social Security and Social Security Disability Insurance income.
Every buyer’s situation is different. Talk with a Veterans United loan officer in more detail.
Retirement Funds as Reserves
One last way retirement funds can come into play is if you need to make a down payment or come up with cash reserves. This is a $0 down loan program in most cases, but there are times when either or both of these could be needed for a VA loan.
Generally, if you’re entitled to a pension but you’re still working, lenders may need to verify that you can access the money before your actual retirement. Many pension plans are only accessible when the person retires, quits their job or dies.
Buyers can more easily extract money from 401k-type plans, although there may be financial penalties for making an early withdrawal.
Borrowers who tap into retirement income for a down payment will need to document the deposit.
Again, remember that guidelines and policies on using retirement income can vary by lender. A Veterans United loan specialist can go over your specific situation at 855-259-6455 to give you a clear sense of what’s possible.