VA Loans and Income Verification
When a veteran or current military member applies for a VA mortgage loan, income verification is one thing that must happen as a part of the VA loan application process. The VA can’t determine a borrower’s debt-to-income ratio without properly documenting what the Department of Veterans Affairs describes as “stable” or “effective income”. Borrowers are encouraged to list all sources on the VA loan application including alimony and child support payments (which are not required but must be listed in order to count as verifiable income).
A military member or veteran’s income as listed on their retirement pay statements, disability pay statements or Leave and Earnings Statements would be part of what the VA considers verifiable income, but what about other sources of cash including part-time jobs or second jobs?
According to the Department of Veterans Affairs Lender’s Handbook, such income is not automatically eligible to be considered as verifiable income. For part time jobs or second jobs, the VA says such income is not stable or reliable in the eyes of the VA unless it can has continued and is verifiable for at least two years. The VA has specific criteria for such income sources, requiring them to be regular and predictable.
The VA rules also state, “…there must be a reasonable likelihood that it will continue in the foreseeable future based on · its compatibility with the hours of duty and other work conditions of the applicant’s primary job…”
VA rules aren’t completely dismissive of part-time or secondary employment that doesn’t meet the two-year criteria. Lenders have some leeway in such cases. The rules say, “The lender may use this income, if it is not eligible for inclusion in effective income, but is verified for at least 12 months, to offset debts of 10 to 24 months duration.” That could change the debt-to-income ratio in the borrower’s favor under the right circumstances, but it’s very important to note that the VA leaves this up to the lender’s discretion.
Such interpretation of part time employment is not guaranteed. The lender is free to dismiss it if he or she so chooses. The lender may be more inclined to include such income when it comes close to qualifying as verifiable income but not enough to technically meet the criteria. The VA also establishes similar rules for income derived from commissions…we’ll cover that in another blog post.