The guarantee extended by the Department of Veterans Affairs (VA) makes it easier for veterans to purchase or refinance residential properties without any hassle. In addition to availing reduced interest rate, they can further avoid the regular credit checks and property appraisal associated with conventional mortgage loan processing. But according to VA lending guidelines, the lenders are required to evaluate the income of the veteran borrower in detail to decide if he can pay the home loan EMIs. The lenders are required to calculate debt-to-income ratios that represent the relationship between monthly obligations and payments, and gross monthly income. According to the standard issued by the VA, the debt-to-income ratio of a borrower must exceed 40.

Normally, the income of a veteran borrower is determined based on his wages or W2 income. But the gross figure considered does not exclude the deduction. If the borrower is self-employed, his income is determined based on the average of his tow most recent year's income as the figure reported on his tax returns.  There are always chances that a borrower may not quality for a VA mortgage loan purely based on his primary income. Therefore, he must understand how to use other incomes that are acceptable for calculating the debt-to-income ratio.

Five Other Incomes that can be used to qualify for a VA Loan

1. Overtime: If the borrower is earning wages at an hourly rate, his overtime income will be considered for calculating debt-to-income ratio. However, he has to provide documentation to prove that he is earning overtime consistently over last two years.
2. Bonus: The consistency of a borrower’s bonus income will decide if it will be taken into account while calculating the debt-to-income ratio. For instance, the Christmas income cannot be considered due to its inconsistent nature. So the borrower has to provide documents to prove that he will receive bonus continuously over a period of time. 
3. Commission: Similar to bonus, the commission income of a veteran borrower can also be considered if it is consistent and will continue in future. The borrower also needs to submit documents to determine the history of earning commission.
4. Net Rental Income: If a veteran borrower is receiving rent from an existing property, the rental income will be considered for calculating the debt-to-income ratio. But the rental income must be reported on the Schedule E of the federal income tax return.
5. Interest or Dividend: If a veteran borrower is receiving interest or dividend by investing funds, the other income can also be considered while calculating the debt-to-income ratio. However, he has to provide income tax returns and investment statement to establish the history of such income.

In addition to these major other income types, the alimony and support payments, or annuity income of a borrower can also be considered for the purpose of calculating debt-to-income ratio. However, the lender will check the income history to ensure that each of these additional income sources is consistent, and will continue in future. The borrower also needs to provide adequate documentation to indicate the additional income, along with the consistency and continuity of the income source.

According to a recent report posted on SunSentinel, “A landmark achievement got lost amid the government shutdown last month: A record-breaking year for the VA home loan program. The Department of Veterans Affairs backed nearly 630,000 mortgages in the fiscal year ending Sept. 30, an all-time high for a benefit borne of the original GI Bill. VA loan volume has tripled since 2007, driven by low interest rates and tighter lending requirements that have squeezed veterans and military families.”

The report further highlighted how many of these veteran borrowers do not qualify for conventional mortgage loans.  So a veteran borrower still has options to avail the distinct advantages of VA mortgage loan without having a high credit score. Unlike conventional home mortgage loans, VA loans are guaranteed by the VA. The guarantee protects lenders from incurring any loss, in case the borrower fails to pay back the loan. So the lenders always evaluate a VA loan application without referring to the conventional lending terms and standards.

The VA income and credit standards also differ from general consumer credit standards. The VA credit standards does not emphasize of the credit history of the veteran borrower. So a borrower, who is not meeting the general consumer credit standards, is still eligible for a VA mortgage loan. However, he must meet the other requirements to avail a VA home loan. Also, the borrower has to choose from the lenders who participate in the VA lending program. In other words, he has to apply for the loan with a bank, mortgage company or credit union approved by VA.

At the same time, the borrower also needs to obtain Certificate of Eligibility from the VA. The certificate will indicate his eligibility to apply for a VA home loan. However, the lenders who have access to the Web LGY system can apply for the Certificate of Eligibility on behalf of the customer. However, the borrower is also required to provide documentation for payments made towards various expenses like rent, insurance and utilities. The lender will use the payment records as the base to establish credit history of the borrower by creating credit analysis report. These simple criteria also contribute towards helping more veteran borrowers to avail VA loans despite not qualifying for conventional financing.