Most veterans receive basic allowance for housing funds. This income isn’t just for rentals, though. Veterans can also use the money to help qualify for a VA loan. Many veterans don’t realize this because the funds are technically for rental housing. It does, however, count as effective income. This effective income can help you secure a VA loan. Here we discuss how you can use the funds for your qualification purposes.
What is Basic Allowance for Housing Funds?
First, let’s look at what the basic allowance for housing funds is and how it works. Basically, it’s non-taxable income veterans receive. The amount you receive depends on where you live, how many dependents you have, and your pay grade. The largest factor, however, is the average rent in your area.
Certain areas of the United States are more expensive than others. The VA considers this when determining how much you should receive. Aside from the cost of living in your area, the BAH also depends on your rank. The longer you are in the service and the higher your rank, the more you receive.
Verifying Your Income
Your basic allowance for housing funds is completely verifiable. This makes them eligible for use for qualifying purposes. Lenders look for income that is consistent and will continue for the near future. They also make sure a third party can verify the income. All of these ring true with basic allowance for housing funds.
As long as you can prove receipt of the income and proof of its continuity, you should be able to use it. Your lender will ask you for specific documents proving receipt of the income. Most commonly, borrowers provide their bank statements to show they received the income on a consistent basis.
How Much Income You Need
It’s impossible to put a number on the amount of income you need. It is based on a variety of factors, including your debt ratio. The more debts you have the more income you need and vice versa. Usually, veterans need more than their BAH funds to qualify for a VA loan, though. They can use this money in addition to their other income, though. Let’s say for example, you have a salaried job. The lender will use that income plus your BAH to figure out your gross monthly income. They compare this figure to your monthly debts.
The VA doesn’t have specific debt ratios they require. This is unlike many other loan programs. They do state that your total debt ratio shouldn’t exceed 41%. However, lenders focus more on your disposable income, rather than your debt ratio. Your disposable income is the money left after you pay your monthly obligations. This includes your potential mortgage payment along with your other monthly debts, such as car payments or credit cards. Depending on where you live, you’ll need a specific amount of disposable income. In addition, the size of your family determines the amount you need to be left over. Your lender can help you determine how much you must have to qualify for a VA loan.
Basic Allowance for Housing funds can help you secure a mortgage. They aren’t specifically meant for it, but they work just fine when applying for a mortgage. If you apply for a VA loan and your debt ratio is close, don’t forget these funds. They can help make the difference between a loan approval and denial.