Part of the process of getting approved for a VA loan is establishing what is called “verifiable income”, which is then used in calculating the potential borrower’s debt-to-income ratio, as well as playing a crucial role in determining both the size of the loan that the borrower may be approved for as well as the interest rate they will be charged for the loan. The VA has specific rules on what sort of things can be counted as verifiable income and what can not. A typical job, of course, can be counted as verifiable income, but the borrower is required to provide the past two years of employment history and income on his or her VA loan application. For a self-employed person or a small business owner, the application can get a little bit more complicated. Income from a side business or even a primary business, if the owner has not kept good books detailing all of the income and expenses of the company, they will have a very difficult time establishing their business as a source of verifiable income.
With verifiable income being such an important part of the VA loan application, there are many questions that come up in regards to what can be considered verifiable and what cannot. A lot of questions have to do with spousal income (especially if the spouse is not co-signing on the loan), and with child support payments. While there are many questions about child support on the flip-side of income (where the borrower is the one making the payments), there are also many questions about child support being received whether for the borrower’s own child or their spouse’s child from a previous marriage. The questions on verifiable income are the ones we will be talking about in this article.
The VA Lender’s Handbook, also known fondly as VA Pamphlet 26-7, tackles these issues and outlines VA policy on the matter of verifiable income. The handbook explains exactly what kind of income can be counted as verifiable and contribute to being approved for a VA loan. Unfortunately, however, it gets a little more complicated, because the VA isn’t the only government body that gets to make up rules. There are a plethora of state and federal laws that dictate whether a spouse’s income can be included on a loan application and what conditions have to be met in order for that to take place. As far as the VA is concerned, the first question to ask is: “Is the spouse obligated on the VA loan?” If the spouse is obligated on the loan, then the spouse’s income would of course be considered on the loan application just as with any other co-borrower.
Child support is a little different, but the biggest thing that makes it different actually has nothing to do with the VA. The Fair Housing Act prohibits lenders from requiring information regarding child support when considering whether to approve a loan application. As such, it is not required for the borrower to disclose information about child support payments unless they choose. However, the borrower cannot use child support payments as verifiable income unless they choose to declare it. Once declared, income from child support can be included as verifiable income and taken into consideration when calculating the debt-to-income ratio of the borrower.
In the event that the spouse is not going to be obligated on the VA loan along with the veteran borrower, usually the laws of the state is what determines whether the spouses income can be used to help qualify the veteran borrower on the loan. The laws that a state has that allow this to happen are called “community property laws” and consider that a married couple has shared financial obligations and can therefore act as one unit; the one supporting the other in their financial commitments. Typically, if the borrower lives in a state considered a “community property” state, there won’t be any problem having the spouse’s income count. However, if the borrower lives in a state that has no community property laws, usually the only way that a spouse’s income can be considered is if the spouse is co-signing on the loan.