As with other types of home loans, the VA loan program determines whether a borrower will be able to make their monthly mortgage payments by looking at their income and employment. For VA loans, in particular, they verify the veteran’s prior two years of employment, primarily through their tax forms (W2s).
Basic VA Loan Income Requirements
- Documents that show income (Ex: W2s)
- Basic Allowance for Housing (BAH)
- Proof of income for the previous two years (Ex: bank statements)
- Proof of other documentable income such as rental income, retirement, etc.
In looking for at least two years of proof, the majority of lenders will want to see as much documentation as possible before they’re willing to approve your loan. At the same time, two years of solid documentation can often be hard to assemble. If you think you won’t be able to get all of the requested documentation, it’s best to let your loan officer know up front.
VA Income Eligibility
VA lenders want to know how the ration of your debt to income (DTI) to determine how risky a loan to you will be and how likely you’ll be to make your monthly mortgage payments, just as they do with FHA and conventional loans. That is why there are many debt income ratios qualifications and requirements you will need to meet on your way to your VA loan, like determining income eligibility.
For this reason, if you want to secure a VA loan for a home purchase or just to refinance your existing home, it pays to understand how underwriters look at income.
Simply put, your income and employment history tell underwriters volumes about your ability to repay the loan they’re considering for you. They analyze the income listed on your W2 forms against their requirements to determine how much of a risk you are as a borrower. Another major tool they use for determining your creditworthiness is an employer confirmation of future or continuing employment. This can either ease the underwriter’s mind that your solid income will continue on in the future—or send up red flags that it might be about to run out. If you’re unsure about how your earnings will be viewed by an underwriter, we recommend that you review the VA’s database of employment and income types to see where you stand.
As seen in the following list, the VA accepts all of the most common types of income:
- Overtime or bonus income
- Retirement income
- W2 income or self-employed income
- Rental income
- Alimony, child support, or separate maintenance
If you feel you’re ready to start the VA loan process, we recommend that you first discuss with your lender all of the documents they will need from you to prove your income. They may want proof of only your two most recent years of income or they may request more information and documentation. Often, your lender can even assist you in finding income information you can’t find on your own via alternate methods.
If you don’t have on hand the tax forms you need to prove your income, you will need to reach out to the appropriate tax authorities to have them generated and mailed to you. This process can take time, so starting early is key.
Fortunately, with such a variety of lenders offering VA loans, you should be able to find one that works within your income for your home purchasing or refinancing needs.