1. What is qualifying income?
Qualifying income shows that the borrower has the right amount of income to cover the mortgage for which they are applying. To be approved for a VA home loan, the borrower must show that they meet three main standards of income: stability, continuing and sufficiency. In other words, the borrower’s income must be steady and reliable, expected to continue on a regular basis, and sufficient enough to cover the mortgage payments. Stability is often determined by the applicant’s employment history. The VA requires that you must be able to show two years of consistent income, preferably documented through W-2s. If there are any gaps in employment in this two-year period, they must be substantiated. If there’s a break due to school or training for work, it can be counted toward the two-year requirement. If you’re self-employed, you must also show a two-year history of employment, and proof of your qualified income will be taken from your most recent federal tax returns. 2. What kind of income is eligible? Remember – the income must be stable, ongoing and sufficient enough to cover mortgage payments. But what kind of income is considered verifiable, or eligible?
- Salary/W-2 income
- Spouse’s salary (if the spouse is cosigning)
- Overtime or bonus income: An average of the bonus or overtime income over the last two years is used.
- Part-time income: May be used if you have a two-year employment history without interruption. Seasonal employment may be used if you can demonstrate a two-year history and proof that the position will continue.
- Commissions: An average over the previous two years. You must also provide your federal tax returns with all schedules, subtracting any business expenses for which you haven’t been reimbursed from your gross income.
- Retirement/Social Security: Verification is required. If the income is scheduled to expire within three years, this cannot be used to qualify as income.
- Alimony or child support: You can choose to use this as qualifying income, but you must provide a 12-month payment history from your ex-spouse or the court showing consistent payments made on time, and proof that the payments will continue for a minimum of three years. A copy of the divorce decree and/or child support order is required.
- Rental income: Must be received from investment properties you own. Income from roommates in a single-family property you occupy does not count. You may have to provide proof of experience as a landlord and proof of three months’ worth of mortgage payments.
- Gambling or lottery winnings
- Unemployment compensation
- One-time performance bonuses
- Income from non-occupant co-borrowers.