How to Count Overtime Income Toward a VA Home Loan

Income isn't everything when it comes to getting a VA home loan, but it's a pretty important factor. Obviously, you have to be able to afford the monthly mortgage payments and have enough money left over each month to take care of regular expenses (better known as residual income).

Lenders will want to make sure the money you're bringing home is stable, reliable and likely to continue. Otherwise, banks and lending institutions won't count it as "effective income," meaning it won't actually count toward mortgage qualification. For example, disability income, child support income, basic allowance for housing (BAH) and overtime can all be counted.

But not all income is created equal. Sources like child support and overtime are acceptable, but VA borrowers will often need a paper trail documenting their history of receiving it or proving the income stream will continue.

Let's take a closer look at overtime income and what you'll need in order to have it count toward qualifying for a VA home loan.

Overtime Income

American workers on private, non-farm payrolls accrue about three hours of overtime every week, according to the Bureau of Labor Statistics. Families come to depend on that additional income each pay period.

For lenders, it's about consistency and stability. There are typically two major concerns when it comes to overtime income:

• Is the borrower guaranteed, required or allowed to work those extra hours?
• Has the borrower shown an ability to work all those extra hours?

The second question may seem a bit strange, but it's equally important. Lenders want to make sure you can handle the additional workload. Not everyone is cut out for 60-hour workweeks, and a burnout that leads to less overtime obviously spells trouble for monthly mortgage payments.

So how do you ease a lender's mind and get them to count your overtime income? Generally, you'll need at least a two-year history of receiving that income to make it work, even if your employer swears the overtime is guaranteed. Of course, there are some exceptions that can vary by the individual borrower.

Overtime Exceptions

For example, let's say you're close but not quite there in terms of having 24 consecutive months of overtime. A lender may be able to calculate your average overtime over the last two years and use the figure, which obviously will be less than what you'd have if you waited to hit the 24-month mark.

People who work a lot of hours in short bursts can also be eligible before the two-year mark. Firefighters are a good example. If you work 84 hours one week and then have the next one off, that's 42 hours in a pay period. In these cases, a VA borrower may be able to count their overtime income with just a year's worth of tax returns showing it.

You also don't necessarily need to have a 24-month history of overtime with a single employer. If you've had two jobs over the past two years, and you're working overtime consistently at both, a lender may be able to count it as long as the income is likely to continue.

As with so many employment issues, each borrower's situation is different. Lenders will hasten to make broad generalizations because everyone's employment circumstances are so unique.