A common question regarding VA loans and income is: “I am an unemployed vet; Can I use my wife’s income to obtain a VA loan to purchase a home?”
This is a difficult question. If interpreting it as asking, “Can my spouse apply for the VA loan?” the answer would depend on whether the spouse is an eligible veteran or not. If the spouse is not an eligible veteran, he or she cannot apply for a VA home loan.
When asking whether it’s possible to apply for a VA loan with only the spouse’s income, the answer is a bit more complicated.
Chapter Four of the VA Lender’s Handbook states;
“By law, VA may only guarantee a loan when it is possible to determine that the veteran:
On the surface, it would appear that an unemployed VA loan applicant would not qualify for a VA mortgage based on these criteria. But what about VA loans applied for in a community property state where spouse income and veteran income are considered equally for purposes of the home loan? VA loan rules state, “Verify and treat the income of a spouse who will be contractually obligated on the loan the same as the veteran’s income.”
But even with a favorable reading of the rules in this situation, other factors at work could result in this borrower’s loan application being denied under circumstances such as the applicant’s debt-to-income ratio being over the VA-defined limit. If the borrower and spouse’s combined debts, plus the projected amount of a VA mortgage payment, are too high, the loan can’t be approved unless the borrower provides compensating factors such as large cash reserves, significant assets or other criteria, as spelled out in the handbook.
At first glance, it is tempting to say that an unemployed VA loan applicant doesn’t have much of a chance of being approved for a VA home loan. But if the spouse’s income and the borrower’s other assets offset this problem, is there a chance for VA loan approval? It’s impossible to provide a one-size-fits-all answer.
The VA does require a lender to verify the applicant’s employment history. The rulebook states, “Verify a minimum of 2 years employment” or get a written explanation in cases of non-military job history less than two years. The rules do seem stacked against the borrower in the circumstances mentioned in the reader question.
The best advice to a borrower in this situation is to contact the Department of Veterans Affairs and/or a lender directly to ask about the specific circumstances a borrower is in — no two situations are alike. What works for one borrower may not be appropriate for another. The only way to know for sure is to ask.