To a VA lender, income is income. That sounds a bit silly at first but whatever amount of money brought in by a VA borrower, that income may be used to help qualify for a VA loan. But the key word there is "may" and while part time and overtime income is as good as any other income when it applies to paying for goods and services, there are times when part time or overtime can't be used to help a veteran buy and finance a home with a VA loan, even though the lender knows the income is there.
Either type of income may be viewed differently by the lender compared to how the borrower sees it and sometimes it doesn't make much sense when it's obvious that the income is coming in but it's useless when trying to qualify for a VA loan.
Employees who get paid by the hour and get paid on a regular basis have a paycheck stub that lists how many hours were worked and the pay per hour for that job. Say that a veteran works as an electrician and is paid $25.00 per hour. If in a two week period the veteran works 40 hours and gets paid every other week, his gross paycheck will read $25.00 X 80 = $2,000. If the hours are consistent, and the VA lender will verify this by reviewing paycheck stubs covering at least a 30 day period, the gross monthly income used for qualifying is $2,000 X 26 (weeks) divided by 12 = $4,333.
But hourly workers don't always work a full 40 hours. Sometimes they work less, sometimes they work more. A paycheck stub for two weeks might read $25.00 X 77 = $1,925. The next paycheck could read $25.00 X 74 = $1,850. These changes in hours worked might be a bit confusing when determining gross monthly income but if the hours are relatively consistent the lender will simply average the year to date income and use that amount for qualifying.
Overtime earnings will also be reported on the paycheck stub and can then read something like:
$25.00 X 40 hours = $2,000
$37.50 X 15 hours = $562.50
Total This Period = $2,562.50
So does the lender use this additional income to help qualify? Maybe. As long as the income meets a specific guideline—consistency.
Overtime earnings must be common and appear at least monthly in a similar amount. Lenders must not only document that overtime income has been consistent but that it will also continue in the future. There's certainly no crystal ball here but if there's a two year history of overtime earnings and it's consistent, then the lender could reasonably determine it will continue.
When lenders calculate a two year history, first the full time yearly amount will be figured using 40 hours X 52 weeks divided by 12 (months). Anything over that amount will be assumed to be overtime earnings. If there is ever a question, the VA lender can contact the employer for an explanation regarding how and when the employee is paid.
Part Time Dollars
Okay, say a couple decides they want to buy their first home in six months and finance it with a VA loan. They determine that they might need just a little bit more income in order to increase their chances of an approval, so the husband decides to take out a second, part time job to boost household earnings.
However, this approach may not work using the same scrutiny used reviewing overtime earnings. There must be a two year history of part time work as well as a likelihood of continuing in the future. Someone that just picks up a part time job for a few months will be in for a surprise when trying to use that income for a VA loan.
If the borrower can show W2 forms from working part time over the past two years, the income is consistent and can provide recent paycheck stubs from the part time effort, the income can be counted and will help someone qualify for a VA loan.
Grant Moon is founder and President of VA Loan Captain Inc., which assists veterans with VA loans, and author of a soon-to-be-released guide on VA loans.