Just because you no longer work doesn’t mean that you can’t qualify for a VA loan. All that you have to be able to do is prove that you have consistent income. While you’ll be missing the employment factor, lenders look for income that will continue for at least the next three years. If you can prove that and you meet the other VA guidelines, you may be a good candidate for a VA loan.
Using Pending Retirement
If your retirement is within the next 12 months from the military, you may be able to qualify for a VA loan even though you’ll retire. The VA lender will need two things to make a decision:
- The official retirement date
- The amount you’ll receive in writing from your commanding officer
Your lender will also need proof of your current income. The lender will then qualify you for a loan based on the lesser amount between your current income and potential retirement income.
Keep in mind that you’ll likely need to prove that you have cash reserves that cover the number of mortgage payments you’ll owe during the time between your end of employment and the start of your retirement pay.
Using Current Retirement Income
If you are currently retired, you already know how much you make and you can prove it to your VA lender. You’ll typically need to provide:
- Proof of the income with the last few months of bank statements (sometimes up to 12 months of statements)
- Proof of the income with your award letter
- Proof that your income will continue for at least three years
Basically, the VA lender needs to determine that you receive enough money each month to cover the mortgage payment as well as your other debts. You must also prove that the income will continue for the near future, putting the lender at low risk of default.
It does help if you have cash reserves on hand as they can be used to cover your mortgage payment if need be. Since using retirement income is risky for lenders, they look for any compensating factors that you can provide.
Other Qualifying Requirements for the VA Loan
The VA has flexible guidelines to help you qualify for a VA loan outside of the income requirements. They include:
- 620 credit score (this is the average that VA lenders require, as the VA doesn’t have a specific credit score requirements)
- 43% total debt ratio (the VA doesn’t focus on debt ratios, but most lenders won’t allow a higher debt ratio)
- Stable income
- Proof that you have enough disposable income each month to cover the cost of living and to keep your standard quality of life the same
- No recent bankruptcies, foreclosures, or collections
The Role of Compensating Factors
If you need to use VA retirement income to qualify for a VA loan, take your time in making as many compensating factors as you can. Lenders can use these factors to offset your risk of default. We already spoke about the need for cash reserves. Other compensating factors include:
- High credit score – If you have a high credit score, you show lenders that you are a financially responsible borrower and probably won’t default on your mortgage.
- Low debt ratio – Even though the VA doesn’t focus on debt ratios, lenders do look at it closely. Keep your DTI as low as possible.
- More than the maximum disposable income – The VA does have strict requirements regarding how much disposable income you must have each month. If you have much more than they require, it can help your chances of approval.
- Other sources of income – If you have other sources of income aside from your VA retirement income, it can increase your chances of approval.
The VA loan is one of the most flexible programs available today. If you are a veteran and even if you are a retired veteran, you may qualify for a VA loan. You are free to shop around with as many lenders as you see fit to help you get the most out of your loan during retirement.