VA guidelines

VA Loans, Income Verification and Frequent Job Changes

April 21, 2011

VA Loans, Income Verification and Frequent Job Changes

In recent posts we’ve discussed the rules for VA home loans where income verification is concerned. Self-employed, freelance, and recently discharged veterans are all able to be considered for VA home loans even when their income may not necessarily conform to the traditional model of employment and steady income. Each situation is examined on a case-by-case basis, with the lender given a certain amount of leeway to interpret the income and employment information available.

But how does the lender process a VA loan application for someone who has had frequent job changes? The VA rules state that a record of frequent job changes and short-term income require additional review. The lender must analyze the reasons for the frequent changes in employment. For example, if a borrower works as a freelancer under short-term contracts for a company that shows a record of consistently or seasonally hiring the applicant, a lender may recognize that as an ongoing relationship and accept the income as verifiable.

But a borrower who simply works at a job for a short period of time, then moves on has a different type of issue–one the VA may not look favorably upon based on this quote from the VA Lender’s Handbook; “Favorable consideration may not be possible for changes…with no apparent betterment to the applicant, and from one line of work to another.”

Compare that to the instructions to lenders about another type of job change; “…give favorable consideration to changes for the purpose of career advancement in the same or related field.”

It’s clear that the VA is more concerned with the reasons behind the job change than the fact that an applicant has changed jobs a few times. Borrowers are required to show habits of consistent on-time bill payments and debt management; the same is also true for those with unconventional, freelance or other non-traditional jobs.

The VA is more interested in the reliability and dependability of an applicant–job activity that shows a habit of upward mobility and responsibility are viewed favorably. Frequent job changes with no real reason or benefit reflect poorly on the applicant.

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  1. al

    can you use rental income for qualifying for va loan

    • Joe Wallace

      Hi Al--we'd need a bit more information on that specific situation before giving a complete answer. Is that income coming from the property to be purchased with the loan? If that's the case, you'd need to communicate directly with the VA for the most definitive answer but the VA examines current income, debt-to-income ratios and other factors in deciding the loan. Future income may be approved in certain instances--a military promotion that has a specific date range, for example, or retirement income that is effective on a specific date. Rental income is tricky and would likely be handled on a case-by-case basis.

  2. karen williams

    Hello, We have been questioned as to how long a discharged vet has to be employed before obtaining a VA Mortgage loan, is there a minimum time period? Also, for an active duty borrower the date shown in the ETS field on the paystub must indicate how many remaining years of service? when obtaing a VA Mortgage. Your assistance with these questions will be greatly appreciated. We THANK YOU ALL so very much for your Serevice and time protecting this country.

    • Joe Wallace

      Hi Karen, thanks for asking. Minimum employment time is situational when it comes to post-service work and qualifying for a VA loan. The lender may take additional factors into consideration including whether the job requires specialized skills and other issues, the main point being the lender must determine that the employment is likely to continue. In some cases the lender may request information in writing to shore up that determination. All that said, VA lender rules state: "Verify a minimum of 2 years employment. If the applicant has been employed by the present employer less than 2 years: verify prior employment plus present employment covering a total of 2 years, provide an explanation of why 2 years employment could not be verified, compare any different types of employment verifications obtained (such as, Verification of Employment (VOE), pay stubs, and tax returns for consistency), and clarify any substantial differences in the data that would have a bearing on the qualification of the applicant." For remaining active duty time, VA loan rules say: "identify servicemembers who are within 12 months of release from active duty or end of contract term. Find the date of expiration of the applicant’s current contract for active service on the LES (for an enlisted servicemember). For a National Guard or Reserve member, find the expiration date of the applicant’s current contract. If the date is within 12 months of the anticipated date that the loan will close, the loan package must also include one of the following four items, or combinations of items, to be acceptable: documentation that the servicemember has already re-enlisted or extended his/her period of active duty to a date beyond the 12-month period following the projected closing of the loan, or verification of a valid offer of local civilian employment following the release from active duty. All data pertinent to sound underwriting procedures (date employment will begin, earnings, and so on) must be included, or a statement from the servicemember that he/she intends to reenlist or extend his/her period of active duty to a date beyond the 12 month period, plus a statement from the servicemember’s commanding officer confirming that: the servicemember is eligible to reenlist or extend his/her active duty as indicated, and the commanding officer has no reason to believe that such reenlistment or extension of active duty will not be granted, or documentation of other unusually strong positive underwriting factors, such as: a downpayment of at least 10 percent, significant cash reserves, and clear evidence of strong ties to the community coupled with a nonmilitary spouse’s income so high that only minimal income from the active duty servicemember is needed to qualify."

  3. Katie

    When a lender asks for verification of employment from the current employer stating that it's in the same line of work, is there a certain format to use for this letter?

    • Joe Wallace

      Format wouldn't necessarily be the issue--but the letter would need to contain any information required by the lender including any supporting documentation the lender requires for verification. Pay stubs or other items may need to be submitted, and the lender would need to verify all dates of employment, the nature of the employment (full, part time, contract, in-house or other designators) as required by the lender.

  4. VC

    We are approx. 2 weeks into escrow. My husband had been interviewing for jobs months before we found a home and he recently got a job offer. Escrow closes 9/14. He starts the new job 9/10. Our mortgage officer is now freaking out despite telling her previously. The position is salaried, is in the same line of work, has a bonus, and a larger salary. She wants him to cancel his leave date and extend his current employment another 2 weeks because she needs "30 days of paystubs". Does this make sense?

    • Joe Wallace

      Best advice--contact the VA directly for advice on this situation: 1-800 827-1000.

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