1) Self-Employed Requirement

VA loan lenders will typically require a borrower to be self-employed for a minimum of two years. This is verified either through appropriate professional licenses, business licenses, or sometimes a letter from a tax preparer. Additionally, 2 years business income tax returns are required for business owners to verify no decline of business income year over year.

VA Jumbo lenders may also consider the W2 earnings of a spouse or coborrower in terms of qualifying income.

2) Employment Requirement

VA loan lenders review 2 years most recent consecutive tax returns, W2’s, 1099’s and paystubs to determine qualifying income. Additional types of income include social security, pensions, retirement monthly distributions, and annuities etc.VA lenders, as typical with all full document loans will look to obtain your most recent 30 days paystubs and a certified employment offer letter stating the gross salary, start date and benefits (for those who are starting a new job in the same industry).

(a) Qualifying Hourly employee income

For hourly W2 employees, the lender will use your hourly rate of pay, averaged with your most recent 2 years tax return income while also taking into consideration your year-to-date income on the year. Additionally, the lender will qualify a two-year average of your commission, bonus, vacation pay and sick pay etc. (if applicable).

(b) Qualifying Salary employee income

The lender will always count 100% of your current salary and does not use a two-year average as your pay is guaranteed year to year per your employment contract. To the contrary the lender will qualify a two-year average of your commission, bonus, vacation pay and sick pay etc. (if applicable).

(c) Military income and documentation

Current service members will get their income documentation from the MyPay DFAS online account. If no longer serving, the lender will also require your DD214 to confirm time in service and status of discharge from the service or a surviving spouse. Also required will be your VA award letter and any disability or retirement income information. This income is tax free, and lenders will allow for a gross up of 25% of that income.

Example: disability income = $1,000.00/mo. Grossed up 25% makes the qualifying income $1,250.00 as qualifying income.

3) Income, Debts & Credit

After determining total qualifying income, the next step is to total up all debts, including the new mortgage payment, property tax, insurance and homeowner’s association (HOA). All monthly debts are viewed in conjunction with total monthly qualifying income, and most lenders will allow up to 50% debt-to-income (“DTI”) ratio when qualifying borrowers for a VA Loan.

Most VA Loan lenders require a minimum 580 credit score, although each has its own guideline overlays that may or may not allow for a higher or lower score. Credit requirements for VA loans are not as stringent as the traditional conforming loans or jumbo loans.

4) Down Payment, Rates & Costs

VA loans allow for 100% financing or more to cover the funding fee, if it is not exempt. These loans will have a noticeably lower interest rates due to the VA guaranteeing the loan and providing a 25% gratuity with every VA loan. Additionally, the VA loan does not require excellent credit and low debt to income ratio (DTI). It really is a great benefit to our servicemen and women.

Gift funds from close relatives are allowed, to be applied towards the down payment or closing costs.

Rates for VA loans are typically always lower than traditional conforming loans (based on a lesser perceived risk to conventional or jumbo loans), but all other typical loans fees are similar, such as possible origination points, broker and lender fees, appraisals, title, and escrow, etc. with the addition of the VA funding fee.

The VA funding fee is currently 2.3% of the loan amount for first time use borrowers. If a borrower has already used their VA loan, the funding fee is increased to 3.6%. This fee can be reduced by putting at least 5% as down payment. The funding fee is also exempt for servicemen or women who have 10% or more VA disability benefits or is a surviving spouse of a veteran who had died on duty as well as purple heart recipients.

5) One Unit VS 2-4 Unit Property

(a) One Unit Property

Owner occupied is the ONLY way to use a VA loan, not to include a second home, offer higher leverage up to 100% loan to value (LTV) as well as the lowest interest rates, and lower credit score requirement. This loan can used by any honorably discharged serviceman or woman.

(b) 2–4-Unit Property

VA home loans cannot be utilized for non-owner-occupied properties UNLESS it is a 2–4-unit property. VA loans for 2-4 units allow for VA home loan borrowers to utilize their VA benefits to not only buy an income producing property but also allow for it to be 100% financed. The only catch on using a VA loan to purchase a 2-4-unit property is the borrower is required to occupy one of the units as a primary residence.

6) VA Jumbo Loans

It is also possible to get a “VA jumbo” loan. These are simply VA loans above a certain dollar amount, which is higher or lower depending on the county.

7) VA IRRRL Loans

The VA IRRRL “Interest Rate Reduction Refinance Loan” is a loan product that requires nearly no documentation. It is the simplest loan the VA provides to qualified borrowers. They do not require underwriting for credit, income, or an appraisal. It is a refinance loan available only to service members that currently have a VA loan. A borrower can not use this program to refinance out of a conventional loan. Additional requirements are the new rate must be lower than the current rate and the cost of the new loan has to be made back on the difference in payment in a specific amount of time, 36 months or less.