Employment is not necessary for a VA loan, but some manner of steady, bankable income is. Usually, a VA loan applicant’s main source of income is a job, so the two go hand-in-hand. But it’s possible to receive a VA loan using retirement income and other sources.
It’s also possible to get one with less than two years of employment history. Everyone’s situation is different, and requirements and guidelines can and will vary among lenders.
Proof of Employment and Income
Employment and income are two important factors. The VA needs a record of both in the form of pay stubs, tax returns and Verification of Employment documents. The VA provides a specific form for Verification of Employment, which must be submitted as an original.
Pay stubs may be originals or copies but the lender must certify that the copy is a true copy of the original. It's best to let the loan officer make a copy of the original document rather than providing a photocopied version. Department of Defense employees are allowed to furnish copies of Leave and Earnings Statements.
For non-military employees, the VA also allows "alternative documentation" for employment verification. According to the VA, "alternative documentation may be submitted in place of a VOE if the lender concludes that the applicant's income is stable, reliable, and anticipated to continue during the foreseeable future; that is, if the applicant's income qualifies as effective income. Two years employment is not required to reach this conclusion."
Alternative documentation consists of one month of the most recent pay stubs, plus the VA loan applicant's most recent two W-2 tax forms. The lender can alternatively confirm employment status by telephone. VA rules for alternative documentation include the caveat that lenders must use standard documentation when an employer refuses to verify over the phone, or when authenticity of the required W-2s or pay stubs is questionable.
Reasonably so, lenders do not take income and employment verification lightly. Lenders simply want to ensure they’re loaning money to service members, veterans and spouses who have the means to take on the responsibility of a VA loan.
Types of Income
Salaries and wages are common forms of income, but other payouts can count as “effective income” when a lender is evaluation VA loan applicants. The following comprise a non-exhaustive list of potential sources of effective income:
- Disability pay
- Retirement earnings
- Basic Allowance for Housing
- Child support/alimony
- Social Security income
Lenders won’t just take an applicant’s word for incomes though. Expect lenders to ask for evidence that effective income will continue for at least three years. Whether you’re employed full-, part-time or by yourself, be prepared to prove your most recent earnings and that they’ll last. VA-approved lenders have differing standards, but two years of employment and income history is a common request from lenders.
It’s possible to have less time on the job and get preapproved, but those are a case-by-case basis. Things like part-time jobs, self-employment and other situations can bring additional requirements for paperwork and documentation.