If you’re getting ready to go through the home loan process, you’re probably starting to pay close attention to your finances and starting to contemplate how much you can afford. If you’re a Veteran looking at a VA loan it’s important to understand what your lender will consider “income.”
There are three questions a lender will ask when evaluating your income:
- Is it stable and reliable? For this, they are looking for income history.
- Is it anticipated to continue? For this, they will verify your current employment.
- Is it sufficient to cover the expenses of the home. For this, they will look at your debt-to-income ratio (DTI) and your residual income.
The most important documents for the purposes of determining income are your W2s (you’ll need them for the past two years to demonstrate reliability) and your current paystub (you’ll need one within the past 30 days to demonstrate current employment). Be aware that the amount that will be considered is the total income you receive before deductions, not what you actually take home.
If you’re self-employed, lenders will review your two most recent income tax returns, average the year-over-year amount and divide by 24 to get a monthly amount. The income needs to be consistent from one year to the next. This monthly average is the amount used for qualifying. If you’ve just started your business or you don’t yet have two years of filed federal income tax returns you’ll have to wait until you do.
Part time income can also be used, but must follow the same rules that full time income must adhere to. For example, if you have had a part-time job for 6 months, the income from that job will not be used as part of your qualifying income for the loan because it does not meet the 2 year stability requirement.