Getting a VA Loan Within 12 Months of ETS

Contrary to some lingering misconceptions, the VA home loan program isn’t limited to Veterans who've transitioned back into civilian life. The reality is thousands of active military members use their VA mortgage benefits every year.

Service members within 12 months of separating from the military (ETS, or Expiration Term of Service) may decide to continue their service, return to the civilian world or retire from work altogether. No matter what your next step is, VA loan lenders want to ensure you have stable, reliable income that's likely to continue. Lenders can only take the risk of extending home financing with a clear sense that you will be able to make your mortgage payments.

Effective Income for VA Loan

Reaching your ETS can mean some significant life changes, including adjustments to your employment and income. Lenders need proof that you will have at least one steady, continuous income source following your current active duty ETS to approve you for a VA loan. Generally, VA lenders count most forms of income with a two-year history as verifiable or “effective income.”

With that in mind, it's essential to know that your lender may not count income types that are less than two years old. This could include income from a new full-time job or a part-time position that you’ve had for less than two years.

Lenders may also be more hesitant to count several types of employment as effective income, including:

• Self-employment
• Part-time employment
• Commissions-based employment
• The trucking industry

Finally, there are also some forms of income that VA lenders will rarely count as steady or continuous, such as performance bonuses, lottery winnings and unemployment compensation.

Now that we’ve covered forms of income eligible towards a VA loan, let’s discuss how your employment status following ETS can affect VA loan eligibility.

VA Loan During Active Duty

When you're within 12 months of ETS, VA lenders are generally thinking about two potential outcomes: you're re-enlisting or otherwise extending your service, or you're leaving the military. Continuing your military service means your employment and income will continue, and that's incredibly important for maintaining or achieving eligibility for a VA loan.

If you're re-enlisting or extending your service, VA lenders will want to see:

• Documentation that you've already re-enlisted or extended your period of active duty beyond the 12 months 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 communicate that there's no reason to believe your re-enlistment or extension won't be granted.

The specific requirements may vary depending on the lender. Generally, once you can provide these documents, you can move forward with the VA mortgage process.

Using BAH Income With a VA Loan

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

You can check your BAH using our BAH Calculator.

VA Loan After Leaving the Military

If you're a service member planning to separate and return to the civilian world, lenders will want to know how you'll be able to make your mortgage payment.

Ideally, you have a civilian job lined up and ready to go. In that case, you'll likely need to show the lender a valid job offer letter or another statement from the soon-to-be employer detailing your new job, salary and other elements. If the lender feels there is enough continuity between your Military Occupational Speciality (MOS) or previous work/education prior to enlistment and your new job, you may meet the VA loan employment requirements.

VA Loan If You Are Continuing Education

Many service members aren’t heading straight into a new job from the military. Some may want to utilize their GI Bill benefits to take college classes. Others will hope to find employment after they've separated. These types of job gaps can pose challenges to your VA loan eligibility.

Unfortunately, due to its short-term nature, you cannot use GI Bill income to qualify for a VA loan. In these situations, prospective borrowers may not have a stable source of income once their period of military service comes to a close. That will make it tough to obtain a VA loan for those hoping to purchase within 12 months of their military release.

VA Loan After Retirement

If you plan to retire from the military and working life altogether, your job prospects aren't in play. Instead, it's a matter of your retirement income streams and what you can qualify for based on them. You might also be able to close on your home before your first retirement payment, depending on the documentation you can provide and the lender.