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What Income Will Count Toward a VA Loan?

Veteran looking up VA loan effective income on his computer.
Veteran looking up VA loan effective income on his computer.
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VA lenders will need to take a look at your income in order to qualify you for a home loan. While there is no cap on how much money you can make as a VA borrower, you will need to understand that not all income you make can be counted on your VA loan application.

Effective Income for VA Loans

The VA wants to ensure that borrowers are consistently able to pay their mortgages, so income must meet three standards in order to count toward a VA loan application:

  1. Stable and reliable
  2. Anticipated to continue for the foreseeable future
  3. Sufficient in amount

In addition to this, the income must be verifiable. One of the most common approaches is obtaining a Verification of Employment (VOE) from your employer. This will tell the lender how much money you make, how long you’ve been there and your position at the company. It’s important to note that this process looks a little bit different for self-employed Veterans. Self-employed income can be tricky to verify, so it’s important to start the conversation with a loan specialist early in the homebuying journey.

Types of Verifiable Income

While your full-time job can make up the majority of your verifiable income, other forms of income can be used towards your VA loan as well. During your evaluation, a VA lender can only consider certain types of income. Sources of verifiable income generally include:

  • Salary
  • Spouse’s salary (if the spouse is co-signing on the loan or the purchase is in a community property state)
  • Overtime and bonuses
  • Part-time or second jobs
  • Commission-based income
  • Self-employed income
  • Basic Allowance for Housing (BAH)
  • Disability compensation
  • Retirement income
  • Pension
  • Rental income
  • Commissions
  • Stock dividends
  • Interest payments
  • Royalty payments
  • Alimony, child support, and maintenance payments

It’s important to remember that, generally speaking, your lender will need a two-year history of each of these income sources in order for them to be counted toward your VA loan. This history is required because it shows lenders that it’s a stable, reliable source of income. If there are discrepancies between the amount of income you receive each year, the average of the last two is typically used.

For example, let’s say you get a $2000 bonus at work one year and then get a $5000 bonus the next. In this case, $3500 ($7000 divided by two) would likely be factored into your total income.

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Income Sources That May or May Not Count

There's definitely a gray area when it comes to VA loan income assessment. If a VA loan applicant’s income is derived from one of the following sources, a lender may or may not decide to count it in the total evaluation:

  • Income from a brand new full-time job
  • Income from a part-time or secondary job that has continued for less than two years

Again, this goes back to the reliability standard. Lenders must see a history of stable income, so they know they are financing a home within the borrower's means.

Types of Non-Verifiable Income

Some income streams simply don’t measure up to the “stable and reliable” test. Lottery winnings or one-time Christmas bonuses aren’t considered stable for the purposes of acquiring a mortgage.

Other types of income that don’t typically count toward a VA loan include income from a job that will end soon, VA educational allowances or unemployment compensation.

Income from the Cannabis Industry

Using income produced from the production and sale of marijuana will be difficult to verify for many VA lenders. The conflict between state and federal drug laws makes it a gray area, but like any other income, VA lenders are told to use their best judgment about what qualifies as effective income.

VA Loans are a Judgment Call

Income analysis is not an exact formula, and it requires VA lenders to make decisions on a case-by-case basis. The VA encourages underwriters to use their:

  • Judgment
  • Common sense
  • Flexibility, when warranted

That flexibility throws both pros and cons at potential VA borrowers. It gives service members some wiggle room, but also generates confusion: What types of income will count during the VA loan evaluation process?

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