Despite a common misconception, self-employed veterans can still be eligible to obtain VA home loans. Self-employment income gives lenders pause only because it can seem less dependable than a salary. Verifying income for VA loan applicants who are self-employed or own a small business can be more complex.
The VA does not approve or guarantee loans for running or funding a small business via the VA home loan program. Borrowers in need of a business loan should explore other means of financing a small business. The VA home loan program is only for residential mortgages only.
Common Documents Needed for Self-Employed VA Loan Borrowers
For self-employed, qualified military borrowers, the VA loan process gets more paperwork-heavy. Chances are, if you’re running a business or earning enough money to keep your pockets full, you have the discipline to dig up the necessary documents.
In addition to the usual requirements listed on the VA home loan application, your lender will need a healthy amount of information as described in the VA Lender's Handbook, Chapter Four.
To apply for a VA loan as self-employed or as a small business owner, borrowers may need to supply documentation including but not limited to:
- Current financial statements prepared in a generally recognized format, including year-to-date profit and loss statement and current balance sheet.
- Individual income tax returns, signed and dated plus all applicable schedules for the previous 2 years (or additional periods if needed to demonstrate a satisfactory earnings record).
- Two years of business tax returns (if corporation or partnership)
- A list of all partners or stockholders
Collecting that paperwork may sound exhausting, but it’s reasonable for lenders to want evidence of reliable, sustainable income through self-employment. Different lenders may have different documentation requirements and lending guidelines for self-employed borrowers.
Family Business Employment and VA Loans
Some lenders only require a year of employment with a family business. But lenders will usually want two years of income tax returns, even if a borrower works for a family member or at a family-owned business. In this case, the lender might only consider the borrower self-employed if he or she owns at least 25 percent of the business, a figure that a third party must confirm.
Self-employed borrowers should also know that they can count only the income upon which they pay taxes. Any amounts that are “written off” wouldn’t be counted toward effective income calculations and overall affordability.
If self-employment or a small business is a military borrower’s main means of income, getting a VA loan is certainly possible. The VA loan process gets more nitty-gritty, but only so the lender can issue a loan that suits the borrower’s financial situation.