How to Use Military Allowances for Housing and VA Loans
Welcome to our comprehensive guide on military income! Understanding military allowances and income sources can be the key to unlocking your path to homeownership.
Reading this article will not only equip you with essential knowledge but also maximize your chances of being approved for a VA loan, potentially increasing the amount of the loan you can secure.
Military Allowance Key Takeaways
Military Allowances - Utilize military allowances like Basic Allowance for Subsistence (BAS), Basic Allowance for Housing (BAH), and Uniform Allowance to enhance your qualifying income. These can be grossed up by 25%, giving you more purchasing power.
Non-Qualifying Income - Even if certain income sources cannot be used for qualification, they can be used to offset veteran debt of 6-24 months. This can strengthen your financial profile and increase your chances of mortgage approval.
Verifying Income Sources - Ensure you have a 12-month history of overtime work, part-time jobs, second jobs, and bonuses to be considered as qualifying income. Proper documentation is essential to validate these earnings.
- Probable Continued Employment - If you've been employed for less than 12 months, providing verification of good probability of continued employment can help strengthen your mortgage application.
Types of Qualifying Military Allowance
Let's delve into the various military allowances that can be used to boost your qualifying income and bring you one step closer to securing a VA loan.
Definition - Qualifying Income, for veteran homebuyers, refers to the income that is considered eligible and sufficient to meet the criteria for obtaining a VA (Veterans Affairs) home loan or other related benefits and programs.
Basic Allowance for Subsistence (BAS)
BAS is a non-taxable allowance provided to cover the cost of food for service members.
The good news is that it can be counted as qualifying income when applying for a mortgage. Lenders may even allow you to "gross up" this income by 25%, giving you a significant financial advantage.
Basic Allowance for Housing (BAH)
BAH is another essential allowance that helps cover housing expenses for military personnel.
Like BAS, BAH can be used as qualifying income, and it's also eligible for the 25% gross-up. This means your BAH can carry even more weight in determining your mortgage eligibility.
As a service member, you may receive a uniform allowance to maintain your military appearance.
This allowance is considered qualifying income and can be grossed up by 25%, further enhancing your chances of securing a mortgage.
Family Separation Allowance
If you're facing a period of separation from your family due to military duties, you may be eligible for family separation allowance.
The good news is that this allowance can be used as qualifying income, allowing you to strengthen your mortgage application.
GI Bill (Temporary Educational Assistance)
While GI Bill benefits are incredibly valuable for veterans pursuing education, they cannot be used as qualifying income when applying for a mortgage.
However, fear not! We'll explore other sources of income that can help offset any potential debt or strengthen your financial profile.
It's crucial to note that while these military allowances are invaluable for homebuyers, each lender may have its specific guidelines and criteria.
That's why it's essential to work with a knowledgeable mortgage professional who understands the intricacies of VA loans and can help you navigate the process with ease.
Use Non-Qualifying Income to Offset Debt
Sometimes, you may have income that cannot be used to qualify for a VA loan due to documentation requirements or its length. In such cases, don't lose hope!
The VA allows this income to be utilized to offset veteran debt that falls within the 6-24 months range. This can be a game-changer, as it can help improve your overall financial standing in the eyes of lenders.
Beyond the qualifying income, there are specific military allowances and income types that can be used to offset veteran debt as well.
These include proficiency pay (such as linguistic, parachute, scuba, flight, or hazard pay), overseas or combat pay (sea pay, submarine, etc.), and income from reserves or the National Guard.
Certain income types, like GI Bill benefits and other retirement benefits, disability income, dividends from stocks, interest from bonds/savings accounts, royalties, notes receivable, and trusts, typically have a three-year continuance.
While these cannot be used as qualifying income, they can still play a significant role in reducing veteran debt when needed.
Remember, utilizing non-qualifying income to offset veteran debt can be a strategic approach to strengthen your mortgage application, especially if you face specific income documentation challenges.
Verify Additional Income Sources
Ensuring the verification of the following income types can increase your qualifying income and thus increase your chances of being approved for a VA loan:
Overtime Work - If you receive overtime pay, it can significantly boost your income for mortgage qualification. However, lenders will require a 12-month history of overtime earnings to include it as qualifying income. Be prepared to provide documentation or pay stubs to verify this income source.
Part-Time Jobs - Part-time jobs can also be valuable income sources for homebuyers. Similar to overtime work, lenders will want to see a 12-month history of your part-time earnings to consider them in your mortgage application.
Second Jobs - Supplementing your primary income with a second job can help you reach your homeownership goals. To utilize this income for mortgage qualification, you'll need to provide evidence of a 12-month history of earnings from your second job.
- Bonuses - For many professionals, bonuses are an essential part of their compensation. While they can significantly impact your qualifying income, lenders typically require a 12-month history of bonus earnings to consider them during the mortgage application process.
Remember, verifying these additional income sources may require gathering several months' worth of documentation, such as pay stubs, tax returns, or employer letters.
Being proactive in obtaining and organizing this information will expedite the application process and demonstrate your financial stability to lenders.
In cases where you have less than 12 months of employment history, don't worry! We understand that veterans transitioning to civilian life may have unique circumstances.
In such situations, providing verification of good probability of continued employment can still strengthen your mortgage application.
What is the new BAH for 2023?
In 2023, the Basic Allowance for Housing (BAH) is undergoing a significant adjustment with an average increase of 12.1%.
This annual update is a result of ongoing evaluations of housing costs to ensure that military personnel receive fair and appropriate assistance in meeting their housing needs.
The BAH is a crucial component of the overall compensation package for service members, helping them maintain a suitable standard of living while serving their country.
It is important to highlight that the 2023 BAH increase may vary based on several factors, including rank, location, and dependency status.
Different ranks, such as commanders and warrant officers, may experience varying adjustments tailored to their specific circumstances.
This differentiation acknowledges the diverse housing requirements and living costs across different military positions and areas.
VA Loan Benefits
The main advantage for military first-time home buyers using the VA loan program is the ability to purchase a house without making a down payment, which is typically required by many traditional mortgages.
VA loans, being backed by the U.S. government through the VA, offer lenders a sense of security, making qualification requirements less strict compared to other mortgage options.
Consequently, eligible borrowers can qualify for larger mortgages, enabling them to afford more expensive properties.
Moreover, VA loans come with lower interest rates, leading to reduced monthly payments, thus providing an opportunity to save money over the loan's duration or pay off the mortgage more quickly by increasing monthly principal payments.
Additionally, borrowers benefit from lower closing costs, leading to savings at the closing stage, and often these costs can be rolled into the mortgage.
Another advantage of VA loans is their assumability, meaning they can be transferred to another eligible borrower, offering flexibility in the future.
Furthermore, VA loans allow for non-spouses to be included as co-signers, expanding the options for those seeking to apply for the loan.
VA Loan Qualification Requirements
To be eligible for a VA loan, borrowers must meet specific criteria.
The primary requirement is that the individual must be active-duty, a reservist, a veteran, or an eligible surviving spouse affiliated with one of the six branches of the U.S. military or National Guard.
Additionally, service members or veterans seeking VA home loan benefits must fulfill certain service time obligations, and their eligibility will be verified through a Certificate of Eligibility (COE) issued by the VA.
Like all mortgage loans, military first-time home buyers need to satisfy certain income prerequisites.
These criteria are typically determined by the mortgage lender and may vary depending on the property's location, type, and the specific mortgage product used.
Nevertheless, it is worth noting that the income requirements for VA loans are generally less strict compared to non-VA loans.
First-Time Home Buyer Checklist
MakeFloridaYourHome has devised a straightforward checklist to assist you as you navigate the process of obtaining your first VA loan and leveraging any military first-time home buyer grant opportunities to purchase a home:
Find a mortgage lender
The initial step involves connecting with a mortgage lender experienced in handling VA loans.
This will provide you with essential information regarding the housing market in your area, VA loan requirements, including VA loan entitlement, and the eligible loan options.
Obtain a Certificate of Eligibility
Once you've selected your mortgage lender, the next task is obtaining your Certificate of Eligibility (COE).
This document confirms that you meet the prerequisites for a VA loan and specifies the VA's guaranteed amount for your loan.
Find a home and sign an agreement
The exciting part of the process involves searching for a home. Utilize the insights from your lender and the VA to collaborate with a real estate agent.
This will help you find an affordable home, secure in the knowledge that your VA loan supports the purchase.
Apply for a VA loan
After reaching an agreement to purchase your new home, proceed to apply for the VA mortgage that covers the specific cost of the property.
With most VA loan products, a down payment is not required, making homeownership more financially manageable.
Your lender will need appropriate documentation related to your income, financial assets, and liabilities, similar to traditional mortgages.
Close on the home
Once your lender processes the necessary paperwork and approves the final loan, you will sign the documents and prepare to move into your new home.
Ready to take the first steps towards making your dream of homeownership a reality with a VA loan? Reach out to MakeFloridaYourHome today and let their expert team guide you through the process.
Don't miss out on the opportunity to secure your new home and take advantage of any military first-time home buyer grant and VA loan opportunities. Contact MakeFloridaYourHome now and start the journey towards owning your perfect home in Florida!
With over 50 years of mortgage industry experience, we are here to help you achieve the American dream of owning a home. We strive to provide the best education before, during, and after you buy a home. Our advice is based on experience with Phil Ganz and Team closing over One billion dollars and helping countless families.
About Author - Phil Ganz
Phil Ganz has over 20+ years of experience in the residential financing space. With over a billion dollars of funded loans, Phil helps homebuyers configure the perfect mortgage plan. Whether it's your first home, a complex multiple-property purchase, or anything in between, Phil has the experience to help you achieve your goals.