A mortgage involves a mutual agreement between a lender and a borrower.
The lender agrees to loan money for a home purchase, and the borrower agrees to pay it back. But before a lender doles out funds, the borrower has to establish their ability to repay the loan.
How? Through income assessment. By looking at an applicant's income, a VA lender determines the size of loan a service member can handle. Only certain types of income can figure into the equation, and each income source must meet a “stability test” before being considered.
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, income must be:
As the VA Lender’s Handbook clearly states, “income analysis is not an exact science. It requires the lender to underwrite each loan on a case-by-case basis, using:
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?
The simplest way to explain it is this: The ideal VA loan candidate will have at least two years of consistent, continuing income that is sufficient to cover a mortgage payment.
But that doesn’t mean immediate denial for part-time applicants, disabled vets, or retired service members. Remember that flexibility, common sense, and judgment apply to each evaluation.
During that evaluation, a VA lender can only consider certain types of income. Those types of income must be stable, reliable, and anticipated to continue, or they can’t be used in a lender’s assessment.
Sources of verifiable income generally include:
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:
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:
Remember that income analysis is not an exact science. That’s why it’s critical to talk to an experienced VA lender about your options. You can reach a Veterans United VA loan specialist by calling 855-870-8845 or via VeteransUnited.com.
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.
Your Certificate of Eligibility (COE) verifies you meet the military service requirements for a VA loan. However, not everyone knows there are multiple ways to obtain your COE – some easier than others.