It is important for the VA underwriter to identify and verify a borrower’s income that is available and necessary to meet financial obligations. By doing so, the underwriter is making sure that there are enough funds each month to cover these obligations, including the mortgage payment, shelter expenses, debts and other family living expenses.
Part of the underwriting process includes evaluating whether the verified income is stable, as well as, reliable. The underwriter must determine that the income is expected to continue into the foreseeable future and is an amount that is sufficient to meet the needs of the borrower.
– A minimum of 2 years of employment must be verified. If the borrower has been employed less than 2 years with the current employer, prior employment must be verified to cover a total of 2 years. If 2 full years cannot be verified, the borrower must provide an explanation for the lack of employment or any lapse that occurred for more than 2 consecutive months.
– A Verification of Employment from an approved employment verification service can be used by lenders.
– A current and original pay stub must be submitted by the borrower. The lender’s Verification of Employment must also be original. Department of Defense civilian employees may provide computer generated pay stubs accessed through myPay.
– If a borrower is employed in seasonal work, documentation showing the total year-to-date earnings and 2 years of individual income tax returns (signed and dated) are necessary.
– The underwriter will analyze whether income is stable and reliable by examining the borrower’s past employment record, training, education and qualifications for their position.
– Although employment of less than 12 months is not considered stable and reliable, it may be considered if the facts indicate this conclusion, such as the employer provides the probability of continued employment.
– If the borrower’s training and education directly relates to their current employment, the probability of continued employment is considered high and the VA lender can include the income in total effective income. However, the borrower may still be required to submit a letter of explanation as to why the employment is less than 12 months.
– Short-term current employment and frequent job changes in the past will be analyzed by the underwriter. The underwriter will give positive consideration to any changes that result in career advancement in the same or related line of work.
– Income from overtime work, part-time jobs, second jobs and bonuses can be used if it has continued for 2 years and this fact is verified.
– Income from commissions is considered stable if it has been continued for at least 2 years. When all or the majority of income is earned from commissions, verification is needed for the actual amount of commissions paid year-to-date, when the commission is paid and whether the income is salary plus commission, straight commission or draws against commission. Signed and dated individual income tax returns for 2 years are generally required when using commission income.
– If the borrower has been self-employed for at least 2 years, the income is considered stable and reliable. The borrower must submit current financial statements including a year-to-date profit and loss statement and a current balance sheet which provides sufficient information so that the VA underwriter can make a determination for income purposes. The borrower must also submit signed and dated individual income tax returns including all applicable schedules. If the business is a corporation or partnership, copies of signed federal business income tax returns plus schedules for 2 years must be submitted. In addition, a list of all stockholders or partners showing the interest each individual holds in the business must be included.
– When the borrower is Active Military, a military Leave and Earnings Statement (LES) is required instead of a Verification of Employment. The LES also shows the date of expiration of the borrower’s current contract for active service. If the date is within 12 months of the date the loan will close, the borrower must submit documentation that they have already reenlisted or extended their period of active duty beyond the 12 month period. If the borrower is leaving the military, verification of a valid offer of employment is necessary. The verification must note the date employment will begin, earnings, etc. In some cases, a statement from the borrower that they intend to reenlist or extend their active duty beyond the 12 month period plus a statement from the commanding officer stating that the borrower is eligible to do so are acceptable.
– For borrowers who have been recently discharged from the service, the underwriter will analyze whether the current employment is related to the same duties that were performed while in the military to determine if income is stable and reliable.
– In order to consider alimony and child support as income, it must be verified that these payments are likely to continue at least 3 years. A copy of the agreement or court decree and proof of receipt of payment are usually required.
– Other types of income that may be considered as effective income are disability income, pension, retirement benefits, etc. as long as it is verified that this income will continue for at least 3 years or more.
Underwriting the income portion of the VA loan is not an exact formula, but must be done on a case by case basis. The VA underwriter will use their experience, judgment and common sense when looking at each loan file. When necessary and depending on the circumstances, flexibility is also used when determining if income is stable and reliable and the approval of the VA loan will not financially hurt the borrower in any way.
Feel free at any time to contact me for more information about more information regarding income underwriting and how you can benefit from a VA loan.
My loan process was very easy and quick. Not to mention a great loan rate. I couldn't be happier!
Capt Sam T. - US Army
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