While it’s true that self-employment income gives some lenders pause, it’s still possible to get a VA home loan as a self-employed Veteran. VA loan income requirements mean you need to prove that you have a steady income, which can sometimes prove tricky when that income comes from self-employment.
Typically, you will need to provide proof of income from the past two years. Employed Veterans can use documents like bank statements and pay stubs, but guidelines are slightly different for self-employed Veterans. You will need to provide financial statements, income tax returns, business tax returns and information about partners and shareholders.
Can Self-Employed Veterans Get a VA Loan?
In most cases, yes. Self-employed Veterans can get a VA loan provided they meet the traditional VA loan income requirements, and the lender is satisfied that their self-employment income is reliable and sustainable.
The first step is to determine whether you’re considered self-employed or not. This may seem obvious, but there are some employment contracts and circumstances that aren’t so clear-cut.
To be considered self-employed, you must:
- Either have sole ownership or own at least 25% of a business
- Be a freelance or contract worker whose income is solely or mostly recorded on the IRS Form 1099-MISC
VA Self-Employed Guidelines
To meet VA self-employed guidelines, you must still meet the regular criteria for VA loans. This includes providing a Certificate of Eligibility (COE) to show the lender your service history and duty status.
You must also have a reliable income, an acceptable debt-to-income ratio, and a credit score that meets the lender’s requirements. For self-employed Veterans, you’ll need to be able to show consistent two-year work history, but you may have to supply additional documentation to satisfy the lender’s income requirements.
In some cases, you might qualify without the full two-year work history requirement. However, you will need to confirm that with your lender.
Documents Needed for Self-Employed VA Loan Borrowers
For self-employed, qualified military borrowers, the VA loan process can be paperwork-heavy.
In addition to the usual requirements listed on the VA home loan application, your lender will need additional documentation in order to establish a history of reliable, sustainable income through self-employment. To apply for a VA loan as a self-employed or as a small business owner, you might need to supply documentation including but not limited to:
- A year-to-date profit and loss statement
- Current financial statements
- Two years of previous individual income tax returns signed and dated, plus all applicable schedules for the previous two years (or additional periods if needed to demonstrate a satisfactory earning record)
- Two years of business tax returns (if corporation or partnership)
- A list of all partners or stockholders
Different lenders may have particular documentation requirements and lending guidelines for self-employed borrowers.
Calculating VA Self-Employed Income
Once your lender receives the required documentation, they will be able to calculate your self-employed income.
Lenders will want to see your net income which is slightly different from your gross income. Net income is your total income minus any losses or expenses. Gross income is before those expenses are deducted, and is the total amount your business generates.
For example, if your gross income for a tax year was $150,000 but you had $50,000 in expenses or losses, your net income totals $100,000. The net income is your take-home pay, and what has the biggest impact on affordability. Anything that you write off as a deduction or expense can't be counted toward the purchase of your new home.
VA Loan Income Requirements for Family Business Employment
Some lenders handling VA loans only require a year of employment with a family business for approval. However, if you have an ownership stake of 25% or more, most lenders will need two years of income tax returns, even if you work for a family member or at a family-owned business. A third party will need to confirm this information.
To conclude, if you are self-employed or own a small business (and it's your sole means of income), it's definitely possible for you to qualify for a VA loan. Keep in mind that more paperwork is involved, and the lender wants income verification for proof that you're financially able to pay off the loan. While this can mean some additional steps for the VA loan process, these guidelines are in place to ensure that the loan you receive suits your specific financial situation.
For help with any self-employment questions or concerns regarding your VA loan eligibility, get in touch with a VA lender today.