Ever wonder what a loan officer is really looking for when you apply for a VA home loan? There are some very obvious issues including FICO scores, loan repayment history, and credit utilization. You can read about those issues on a VA loan website or blog. But what about the things people don’t talk so much about?
For example, you may wonder what specific VA credit score requirements are for loan approval, but the VA Lender’s Handbook, VA Pamphlet 26-7, does not specify credit score ranges. It leaves that up to the lender. That is a reason to shop around for a VA lender all by itself.
For currently serving military members there are some important details that sometimes get lost in the shuffle, but you’ll soon discover that certain documents and information are crucial for getting your VA mortgage approved.
Your main concerns as someone still serving and interested in using your VA mortgage benefits will include being able to show you have enough time remaining in your current contract or are reenlisting. Or retiring. The paperwork you’ll need depends greatly on your anticipated status in uniform within the next year or so. Soon-to-be military retirees will have a paperwork burden far different than a member of the National Guard or Reserve component.
VA loan rules may not be the only guidelines that apply to your loan. State law, changes in federal programs, or even changes in the VA loan program itself may affect any or all of these requirements in the future.
Your Military Service Commitment
Believe it or not, this can be a factor in VA home loan approval. Veterans and military retirees don’t have to worry about this once they are back in the civilian world, but if you are still serving at the time you apply for the VA mortgage, you will find this is definitely a factor.
Why? Because in order to approve a VA mortgage, your loan officer has to determine the nature of your current employment, how long you have been working there, and whether or not that employment is likely to continue.
If you are a service member in good standing and have plans to apply for a VA mortgage, the time remaining on your military service commitment counts. VA loan rules instruct participating lenders to ensure applicants have more than 12 months remaining before they are due to retire or separate.
For all VA loans, military members must provide a Leave and Earnings Statement, preferably the most recent, but one that is not more than 120 days old from the date of closing the deal. This time frame is longer for construction loans–you have 180 days if you are having a home built on your own lot using a VA construction loan. You’ll also need to show documentation that officially reports your military service commitment.
If you apply for a VA mortgage with less than 12 months remaining on your current commission or enlistment, the lender will require one of the following:
- re-enlistment or otherwise extending the enlistment beyond the 12 month period
- a civilian job offer
- eligibility for military retirement pay
Not all applicants may be able to provide the documentation listed above, In such cases the lender may require “a statement from the servicemember that he/she intends to re-enlist or extend his/her period of active-duty service to a date beyond the 12-month period”.
Borrowers who choose this option must also provide a written statement from the applicant’s command support staff “confirming that the servicemember is eligible to re-enlist or extend his/her active-duty service as indicated”.
There is also the option of providing the participating VA lender with documentation” of other unusual strong positive underwriting factors” including a 10% down payment, six months of cash reserves, and/or “evidence of strong ties to the community coupled with a non-military spouse’s income so high that only minimal income from the active-duty servicemember is needed to qualify”.
First-Term Military Members And VA Mortgages
If you are a first-term military member (those on their very first enlistment) and are wondering about your ability to qualify for the loan itself (not the basic eligibility for the VA loan program), be aware that VA loan rules generally require you to have a minimum of 12 months of employment on the books in order to be considered for VA loan approval.
This may not affect older service members who have plenty of employment history, but first-term soldiers, airmen, sailors, Marines, Coast Guard members and Space Force Guardians should know this VA loan rule in the VA Lender’s Handbook:
“Generally, employment less than 12 months is not considered stable and reliable. However, the lender may consider the employment stable and reliable if the facts and documentation warrant such a conclusion.”
VA loan rules instruct the lender to, “Determine whether the borrower’s past employment, training, and/or education equipped him or her with particular skills that relate directly to the duties of their current position.”
When applying for a VA loan, the lender needs to review your income. For civilian workers, there is a whole different set of issues related to pay and employment.
For example, if you are a civilian and you are paid as a contractor or earn commissions, VA loan rules require you to have earned that type of income for a minimum period of time. Lender standards will also apply in this area. If you switch from being a salaried employee to being a contractor, that type of work also requires a minimum amount of time on the job with that type of earnings before your income may be counted.
But when you serve, your basic pay is your qualifying income in addition to any benefits the lender and VA loan rules find acceptable. Military allowances and benefits may be accepted as income if they are likely to continue, which is why your housing allowance (BAH) is acceptable as income for VA loan approval. The same goes for your annual military clothing allowance and certain other benefits.
One type of benefit you cannot use to qualify for a VA loan? GI Bill housing stipends — they have a limited duration and are not likely to continue.
Guard and Reserve Income
VA Pamphlet 26-7, Chapter Four tells the lender, “If an activated Reserves/National Guard member applies for a loan, they must present orders indicating their current active duty tour is not to exceed 12 months.” That’s the start of the slightly different application process for these applicants.
Guard and Reserve pay is a tricky issue when it comes to qualifying for a VA mortgage. In general, the lender wants to know how much you earn from civilian employment and won’t necessarily use Guard/Reserve pay for those who are activated for full-time as qualifying income.
An example is given to lenders in the VA Lender’s Handbook, in Chapter Four:
- The VA loan applicant has full-time civilian employment with $3,000 per month income.
- The borrower’s current income from the Guard Reserves $3,500 per month because of the activation (with orders for 12 months)
- Chapter Four tells the lender, “Since the borrower’s full-time civilian employment is only $3,000 per month, the $3,000 should be used to qualify the borrower.”
Non-Military Income For Military Members
VA loans also consider non-military employment as income if the income meets VA standards. That may generally mean part-time employment in the traditional manner, but would not necessarily include options like selling goods on eBay or Etsy as a maker, artist, or reseller. In all cases the lender won’t be able to simply take your word for it when it comes to this type of earning, employment verification will be needed. Be prepared to submit employer contact information and turn over pay stubs or other proof of employment and income from the part-time job.
- VA Loan Basics
- VA Loan Rules for Mortgage Approval: Employment and Income
- Considerations For Using Your VA Loan Benefits as a Veteran
- VA Loans, Investment Properties, and Deployments
- VA Loan Limits 2022
- What You Need to Know About VA Loan Closing Costs
- VA Loans Versus FHA Mortgages: Which Is Better?