VA Loan Questions: Military Pay, Allotments, and Debt
VA borrowers who are still in the military have several unique aspects of their pay that aren’t always a feature of the civilian equivalent.
For example, military pay is documented by a Leave and Earnings Statement (LES) which used to be delivered in paper form only, but now is available electronically. The LES does not simply report the amount of pay and deductions for the military member; it also shows any vacation time accumulated, and another detail known as an “allotment” where applicable.
An allotment is an automatic payment the military member elects to have deducted–for example, it can be used to purchase savings bonds, contribute toward the GI Bill or other optional programs. An allotment can also be used to pay back the government in cases of overpayment, advance pay where the military member was “paid forward” or other situations.
When a military member has an allotment, he or she may wonder how a lender might take that into account when it comes time to consider the VA loan applicant’s debt-to-income ratio. What do VA loan rules say about allotments and how they are to be viewed by the lender?
According to VA Pamphlet 26-7, the VA Lender’s Handbook, “Significant debts and obligations of the applicant must be verified and rated.” If the VA borrower’s debts include a debt to the government that is paid in the form of an allotment, this will be taken into account. In fact, the VA loan rulebook has specific instructions to the lender in these cases.
“When a pay stub or LES statement indicates an allotment, the lender must investigate the nature of the allotment to determine whether the allotment is related to a debt.”
If you are a military member with an allotment that is NOT a debt, it may be in your best interests to explain the allotment to the lender and show that it is not debt-related.
Don’t assume that the lender has much experience with determining the nature of such allotments–it would be easy for someone unfamiliar with military pay systems to simply assume “allotment” equals “indebtedness”. If you are using an allotment for a purpose other than paying a debt, let the lender know.
Do you have questions about VA home loans? Ask us in the comments section.
About Bruce Reichstein
Experienced VA Loan Mortgage Banker specializing in Military Mortgage lending to US Veterans for over 24 years. (www.VALoans.com). Expert in VA Jumbo Home Loans greater than $417,000 which go up to the maximum 2012 county limits as defined by the Veteran's Administration. Thousands of loans to High Ranking Military Officers, DOD Employees, Airline Pilots and many other Military Heroes who qualify. Welcome opportunities pertaining to online military ventures.