One of the most common questions I receive from transitioning service members is how to qualify for a VA loan without income. For example, if you are getting out of the military in 6 months, your lender won’t be able to use the military income to qualify you for the mortgage, and that puts you in a weird spot if you were planning to buy a home as soon as you move back to your home of record after exiting the military.
This article has been a long time coming, and I have no idea why I didn’t write it sooner.
I hope this helps give you some ideas, but just know going forward that the answer isn’t as simple as you would hope.
1. VA Disability Income
I listed this one first because it is common these days for service members to receive disability income.
Did you know that VA disability income counts as 1.25X the amount you receive when factoring for debt-to-income ratios?
That is right; if you receive $1,000/month in disability income your lender will count it as $1,250.
The reason is that your disability income is tax exempt, and so they count it as what the equivalent pre-tax ordinary earned income would need to be in order to net your VA disability amount.
I have seen veterans qualify for mortgages based solely off their VA Disability income, including a $400,000+ home!
2. Retirement, Or IRA Distributions
This one is straightforward—although I don’t believe it will apply to the bulk of our younger audience. If you receive a pension, or distributions from an IRA, 401k, or other retirement vessel it is income that you can use toward qualifying for your loan.
3. Spouse income
This is another one of those “obvious” answers, but people don’t always realize that you can utilize it.
If your wife (or husband) has a job, you can use their income toward qualifying for the loan.
For example, my wife is a high school counselor, and has been for the last two years. When I exit the military, I could utilize her income to improve my debt-to-income ratio when qualifying for the loan.
This is one advantage to sending your spouse/family back home to get a job prior to exiting the military. Although, having done this for just about the last two years of my time on active duty, I do NOT recommend it from a quality of life standpoint.
4. Get a job offer letter
If you have an official job offer letter to begin employment with a company upon exiting the military you can use that income toward qualifying for the VA loan.
This will show continuity between your current income, and the income you will be receiving upon exiting the military.
This letter needs to be official, show the salary you will be receiving, date you’ll be starting employment, location of the job, and any other pertinent information regarding your situation.
Anything that isn’t regular W2 income cannot count towards the income. That means you can include your salary or hourly wage from this job offer, but not anything commission-based, or related to bonuses you may receive.
Please note, you will want to talk with your lender to clarify exactly what they want to see in this letter, and ensure your employer is legit. The last thing you want to do is use income from a job that you aren’t actually going to be working, and then wind up getting foreclosed on because you can’t afford to make your mortgage payments.
5. 75% gross rental income
This is one of the reasons that I love house hacking so much!
Let’s say Jimmy buys a 4-plex and the market rent is $1,000 per each of the units in the home he is buying. Because Jimmy plans to live in one unit, and rent the other three, he can then use 75% of the $3,000 that those units can reasonably be expected to rent for toward his mortgage payment.
In this scenario, Jimmy can count $2,250 of rental income (75% of $3,000) toward his debt-to-income ratio.
The catch here, is that this $2,250 only counts toward the mortgage payment. Any of this rental income that is “left over” after being used towards his proposed mortgage payment will not count toward his debt-to-income ratio, it will just…disappear…
Just to clarify, that it counts towards the Principle, Interest, Taxes, and Insurance (PITI) not just the mortgage payment.
6. Cosign 12.5% down
Contrary to popular belief, you can partner with a non-veteran, non-spouse to use the VA loan.
The downside, is that the other person will need to bring a 12.5% down payment to the closing table.
That being said, 12.5% down is still better than 20% down, so this could be worth their time. Although, personally, I wouldn’t pay 12.5% down for a primary residence when there are better options like the FHA loan, or even 5% down conventional loans (for owner-occupied) that are better.
The only situation I see this making sense in is if your partner has the 12.5%, but not very good credit, or for other reasons wouldn’t be able to qualify for the loan on their own. The caveat here, is that I don’t know if I would want to partner on a home with somebody who wasn’t able to buy on their own for these reasons.
Nonetheless, it is an option!
7. Partner with another veteran
You most likely put two and two together when I mentioned partnering with a non-veteran, but yes, you can partner with another veteran as well.
I have a couple of friends who have done this, and one set that did it specifically for this reason. One of them makes a lot of money, but is in a new job and didn’t show the income on his tax return yet. The other, had the tax return to back up their income, and they collaborated to purchase a badass triplex in San Diego!
There are several situations in which it would make sense to purchase to purchase a property together, but the most common two I have seen are when one member cannot show the income required to purchase, or they want to combine their income in order to qualify for a larger property.
8. Tax Returns Showing Income
In order to crush the income requirement, the best thing you can do is have tax returns for the last year or two showing your income.
One of the things a lot of real estate investors do is try to get as close to zero on their taxes. While this is great from the standpoint of paying taxes, it does nothing to help you when qualifying for a loan.
Let’s say you brought in $80,000 in rental income last year, but after all of your expenses you showed a net cash flow of $1,000. Then you will only be able to use $1,000 toward helping you qualify for the loan you’re applying for.
For this reason, it is (sometimes) best to bite the bullet and show taxable income in order to showcase that your business is actually making money.
While this may be painful from the standpoint of paying taxes, it can be quite beneficial for qualifying for a loan.
Brutal Truths About Ways To Qualify For A VA Loan Without Income
The reality is that you may not be able to qualify for a loan at the time you transition from the military.
While this isn’t what you want to hear, it is further proof that you need to plan ahead, and get your ducks in a row before exiting the military.
There are several “income streams” that I get asked about all the time—and I do mean all the time—which simply do not count toward your income.
I want to make sure I outline these for two reasons. First, because people just don’t know, and I feel the need to put this information out there in order to help you, and be a valid resource for you and your family to reference. Secondly, because let’s be honest, I’m sick of having to explain this all the time, haha.
That about sums this up, I don’t care what your momma told you, or what school you go to, your basic allowance for housing (BAH) from the G.I. bill doesn’t count.
The reason is simple, this income is guaranteed to disappear in the near future.
Why would bank give you a 30-year loan, based on income that won’t even last one-sixth of that time?
Hopefully that simple explanation makes sense, because there is no world in which you can use the income from your G.I. bill—or the BAH related to your G.I. bill—can be used to qualify for a loan.
Sorry, not sorry.
Yes, it would be nice if it could…but it can’t.
Side note: In case you can’t tell, this is the number one question I get about income you can use to qualify for the VA loan, and people genuinely try to debate me about why this shouldn’t be the case, as though I have some power to change the banking industries perception of risk.
Side hustles are another very common “income stream” that people ask about.
As much as it pains me to say this, you (unfortunately) cannot start driving for Uber today, make $200, extrapolate that out to show that you would earn $73,000/year at that rate, and qualify for a loan.
Don’t get me wrong, side hustle income can count toward your qualifying income, but only if you have tax returns backing up how much you are earning this way.
Many people hide their side hustle income, or bounce from side hustle to side hustle, and unfortunately—In either of these situations you’re out of luck.
Now, what you can do to take advantage of this side hustle income is utilize it to aggressively pay down your consumer debt(s). This will improve your debt-to-income ratio, and can help your other income stretch a lot further while qualifying for a loan!
You Just Can’t. Find Another Solution.
Before you get upset that “it’s bullshit this doesn’t count” try to think of it from the banks point of view.
Anytime a bank lends you money they are assuming a certain amount of risk. It is in their best interest to assume the least amount of risk while lending their money to people.
For this reason, you need to be able to verify the amount of money you earn.
Would you buy an apartment complex if the landlord had now way of proving how much money it brought in over the last few years—or if it made any money at all?
The same is true for the bank, they are investing in you, and you need to be able to prove that you’re a safe bet for repaying the loan.
That is the way it is, and you’re not going to be able to change it.
The Best Thing You Can Do To Qualify For A VA Loan Without Income
The best thing you can do is get a solid job, and show a competitive income.
Focus on finding the solution to help you be more competitive for your loan, as opposed to focusing on the downside that you can’t qualify right now.
Also, do not commit mortgage fraud and try to lie about any of this. It simply isn’t worth it!
Hopefully this “tough love” article helped clear some things up for you, and I look forward to hearing your success stories on that first (or next) purchase!
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