If you are on active duty, you probably receive allowances from the military. You might wonder if you can use this military allowance towards your qualifying income for your VA loan. The good news is that you probably can.
Keep reading to learn what circumstances you can use this income under.
Verifying Your Income
There is one thing every VA lender must verify when funding a VA loan – your income. It’s not just the amount you make, though. It’s the consistency of the income and its likelihood to continue. The VA and most lenders prefer to use income that they can prove will continue for the foreseeable future. While it’s not possible to predict the future, there are ways lenders can tell if income is temporary or will likely continue.
If you can’t prove your income will continue for the next 3 years, you probably cannot use it. If you can prove it, the VA usually allows its inclusion in your qualifying income.
The Types of Military Allowances
Typically, the VA and supporting lenders allow the following types of allowances to be used as qualifying income:
- Basic Allowance for Housing – If you don’t live in government housing, you likely receive this allowance. Military members receive this money monthly. How much you receive is dependent on your rank, where you live, and how many dependents you have.
- Basic Allowance for Sustenance – This is an allowance to help you pay for food for you and your family. The amount you receive is dependent on the cost of food in your area based on the USDA index and your number of dependents.
- Special and Incentive Allowances – Certain military members receive special incentives. They may include Hazardous Duty Pay, Flying or Diving Duty Pay, or Hardship Duty Pay, just to name a few.
Proving Your Military Allowances
It’s generally not a question whether you can use your military allowance for qualifying purposes. It’s a question of can you prove the income? That’s what the VA and/or the lender need. It’s not enough for you to say that you receive the income. You must prove it. In addition, you must prove how long you will receive it moving forward. You can prove receipt of this income with your Leaves and Earnings Statement. It’s that simple.
The largest red flag occurs when you will separate from the military within the next 12 months, though. If you have no plans of re-enlistment, you probably won’t be able to use your allowances for qualifying purposes. The only way to prove that you will continue to receive the income is by proving re-enlistment or extension of your service with documentation or a statement from your commanding officer.
Making Up for Military Allowances
If, however, you are going to leave the military within the next 12 months, but you already have a job lined up, this could work to your benefit.
If the new job’s income is close to or above the amount of income, you were making from the military, including your allowances, the lender may allow it. You will need official documentation from the employer showing a commitment to employ you on a specific date and for a specific amount of money.
Whether a lender will use this is on a case-by-case basis. Different lenders have different rules and each military member will have different circumstances.
Generally speaking, VA lenders can use your military allowance for qualification purposes. The VA knows the income isn’t temporary and they know how long it will continue. The largest hurdle you would have to jump is if you are leaving the military in the next year. Planning ahead and making sure you have income to make up for the military income you will no longer make can help you get the approval you need. Remember, for a VA loan, you don’t need a down payment; but you do have to qualify for the loan which means proving stable income.