As a veteran looking to use your VA loan benefit, understanding how lenders calculate your income is crucial. Whether you're active duty, self-employed, or have variable pay, the rules can seem complex. But don't worry – we're here to break it down for you in simple terms. If you have questions as we go along, feel free to reach out to me, Josh Lewis, Certified Mortgage Consultant. I'm here to help you navigate the VA loan process. Let's start with the big picture. When looking at any type of income, VA underwriters are focused on three main things: 1. Is the income verifiable? 2. Is it stable? 3. Is it likely to continue? These factors apply whether you're active duty military, self-employed, or have variable pay like commissions or bonuses. Now, let's dive into the specifics for each type of income. Active Duty Military Income If you're active duty, your Leave and Earnings Statement (LES) is going to be your best friend in the loan process. Here's what lenders look at on your LES: End of Service (ETS) Date: This is super important. If your ETS date is within 12 months of when you'll close on your home, we can't use your income unless you're planning to reenlist and are eligible to do so. Officers have it a bit easier here, as their ETS date often shows as "indefinite." Base Pay: This is straightforward – it's based on your rank and years of service. Basic Allowance for Housing (BAH) and Basic Allowance for Subsistence (BAS): These are standard based on your duty station and whether you have dependents. Special Pay: Things like foreign language pay, flight pay, or hazardous duty pay. To use these, we need to verify they'll continue for at least 36 months. Here's a pro tip: We can actually "gross up" your BAH and BAS by about 25% because they're non-taxable. This means a $1,000 BAH actually counts as $1,250 for qualifying purposes. Pretty sweet, right? If you're curious about how this might affect your qualification, don't hesitate to reach out to me for a personalized analysis. One thing to watch out for: If you're moving to a new duty station, make sure your lender is using the correct BAH for your new location. This can make a big difference in how much you qualify for, especially if you're moving from a high-cost area to a lower-cost one (or vice versa). Self-Employed Income Now, if you're self-employed, things get a bit more complex. The basic rule is we need to see two years of tax returns. But don't panic if you don't have that – there are exceptions, which we'll get to in a bit. Here's what we're looking at for self-employed folks: Tax Returns: We need to see your personal returns and, if you have a separate business entity, your business returns too. Profit and Loss Statements: These help us see how your business is doing currently compared to previous years. Business Stability: We're looking at whether your income is steady or growing. If it's declining, we'll need a good explanation why. Now, here's where the VA loan really shines. While most loan programs require a full two years of self-employment history, the VA can be more flexible. In some cases, we can use just one year of returns with an otherwise strong file. Here's a real-world example: I recently worked with a veteran who had been a construction manager for 29 years. She left her W-2 job 14 months ago to become a 1099 contractor for a developer. She was making $177,000 a year, had money in the bank, and we could show consistent deposits. Even though she didn't have two years of self-employment, we were able to make it work because of her long history in the same field and her stable current income. If you're self-employed and wondering how your unique situation might be viewed by lenders, I'd be happy to review your details and provide some guidance. Just give me a call or send me an email. One important note: If you're self-employed and pay yourself a salary, don't assume we can just use that salary amount. We have to look at your overall business income too. If your business is showing a loss, that salary might not count as qualifying income. Variable Pay Variable pay includes things like commissions, bonuses, overtime, and part-time or seasonal work. The general rule here is we need to see a two-year history of receiving this income. But as with everything in VA loans, there's some flexibility. Here's how we handle different types of variable pay: Commissions: We typically average your commission income over two years. If it's increasing, that's great. If it's decreasing, we might have to use the lower figure or explain why it's likely to stabilize or increase. Bonuses: These need to be regular and likely to continue. A one-time signing bonus won't cut it, but if you get an annual performance bonus, we might be able to use that. Overtime: We'll look at your history of overtime and whether it's likely to continue. If you've been consistently getting 10 hours of overtime every week for two years, that's pretty solid. Part-time or Seasonal Work: Again, we need to see a history here. If you've been working a summer job for the past couple of years, we might be able to use that income. The key with all variable pay is documentation. The more you can provide, the better. Pay stubs, W-2s, and written verification from your employer all help make your case. If you're unsure about what documentation you need for your specific situation, feel free to reach out. I can provide a checklist tailored to your income types. Rental Income If you're keeping your current home as a rental when you buy a new one, or if you already own rental properties, here's what you need to know: Departing Residence: If you're keeping your current home as a rental, we can use the potential rent to offset the mortgage payment. But we can't use any excess rent as additional income. Existing Rental Properties: If you already own rentals, we typically need to see two years of tax returns showing this income. We'll use your Schedule E to calculate your net rental income. Multi-Unit Properties: If you're buying a multi-unit property (like a duplex or fourplex) and plan to live in one unit and rent out the others, you might need to show you have experience as a landlord or that you'll be using a property management company. Rental income can be a great way to boost your qualifying income, but it can also be tricky to document correctly. If you're considering using rental income to qualify, let's chat about your specific situation and how we can make it work. Other Types of Income There are a few other types of income worth mentioning: Alimony and Child Support: We can use this if you can show it'll continue for at least three years. VA Disability: This is great income for qualifying and doesn't require much documentation. Social Security: We'll need your award letter and proof you're receiving the payments. Remember, lenders can't ask about alimony or child support due to fair lending laws. If you receive this income and want to use it, you'll need to volunteer that information. Common Challenges and How to Handle Them Now that we've covered the main types of income, let's talk about some common challenges and how to handle them: Recent Job Changes: Contrary to popular belief, changing jobs doesn't automatically disqualify you. If you've stayed in the same field and your income has remained steady or increased, it's usually not a problem. The key is that the change makes sense – like moving to a better-paying position in your field. Employment Gaps: These aren't necessarily deal-breakers. If you took time off for school, to care for family, or because of a military deployment, we can usually work with that. The key is to explain the gap and show that you're now back to stable employment. Declining Income: This can be tricky. If your income has decreased, we'll need a good explanation of why and evidence that it's stabilized or starting to increase again. Multiple Jobs: If you work more than one job, we generally need to see a two-year history of working multiple jobs to use all the income. This shows you can handle the workload long-term. If you're facing any of these challenges, don't assume you can't qualify. Reach out and we can discuss strategies to overcome these hurdles. Often, there are solutions that you might not be aware of. Tips for Success Here are some tips to make the income qualification process smoother: Be upfront with your lender: If you have any unusual income situations, tell your lender right away. The sooner we know, the sooner we can figure out how to make it work. Keep good records: Save your pay stubs, tax returns, and any other income documentation. The more information you can provide, the easier it is to qualify your income. Don't make major changes during the loan process: Try not to change jobs, take on new debts, or make large deposits without talking to your lender first. Use an experienced VA lender: The VA loan program has some unique features that not all lenders understand. Working with someone who knows the ins and outs of VA loans can make a big difference. Don't assume you won't qualify: The VA loan program is incredibly flexible. Even if you've been told "no" before, it's worth talking to a VA loan specialist. They might be able to find a way to make it work. If you're ready to start the VA loan process or just have questions about how your income might be viewed, I'm here to help. As a Certified Mortgage Consultant specializing in VA loans, I can provide the guidance you need to navigate this process successfully. The Importance of Working with the Right Lender I can't stress this enough: who you work with matters. The VA loan is the most flexible and forgiving loan product out there. It's the only one where the underwriter is instructed to find a way to make the loan work if possible. But to take full advantage of this flexibility, you need a lender who really understands VA loans. I hear stories all the time of veterans being told they should use a conventional loan instead of their VA benefit. In 99% of these cases, the person giving that advice simply doesn't understand VA loans. A good VA lender will know how to: Maximize your income: They'll know which types of income to include and how to document them properly. Navigate challenges: Whether it's a recent job change, a gap in employment, or variable income, an experienced VA lender will know how to handle it. Take advantage of VA flexibilities: The VA allows for some exceptions that other loan programs don't. A knowledgeable lender will know when and how to use these exceptions. Guide you through the process: They'll be able to tell you exactly what documentation you need and help you understand each step of the process. As a Certified Mortgage Consultant with nearly 30 years of experience helping veterans like you, I'm committed to providing this level of expertise and guidance to my clients. If you're ready to explore your VA loan options, let's set up a time to talk. Final Thoughts Understanding how lenders calculate your income for a VA loan can seem complicated, but it doesn't have to be. The key things to remember are:  Income needs to be verifiable, stable, and likely to continue. There's often more flexibility than you might think, especially with VA loans. Good documentation is crucial. Working with an experienced VA lender can make a big difference. Whether you're active duty military, self-employed, or have variable income, there's likely a way to make your VA loan work. Don't be discouraged if your income situation is a bit unusual – that's where the flexibility of the VA loan really shines. Remember, the VA loan benefit is a fantastic tool to help veterans achieve homeownership. It offers great terms, flexible qualification guidelines, and doesn't require a down payment in most cases. By understanding how income qualification works, you're taking a big step toward using this benefit effectively. So gather your income documents, schedule a call on my calendar, and take the first step toward your new home. With the right preparation and guidance, we’ll get you on your way to making your homeownership dreams a reality. If you're ready to start your VA loan journey or just have questions about the process, I'm here to help. As a Certified Mortgage Consultant specializing in VA loans, I can provide personalized guidance based on your unique situation. Don't hesitate to reach out – let's work together to make your homeownership goals a reality.

After 27 years of working with people like you navigating their way through the complexities of the housing market, I understand the reservations many renters have about taking the plunge into homeownership. After all, owning a home is more than just another line item on an adulting checklist—it’s a major life decision requiring thoughtful preparation and stable resources. The Right Time: Is It Now or Later? Last week, we delved into some critical questions that renters should ponder when evaluating the decision to make the leap from a lease to a mortgage. The American Dream of owning a home tantalizes many, but the reality is, it's not for everyone—at least not all people at all times. The "Why Not Now" Factors Let’s start by acknowledging that the reluctance to buy often comes from legitimate concerns. The three "Big Rs"—Readiness, Resources, and Responsibility—often serve as stumbling blocks. Readiness: If your career path is still winding or the ink on your marriage certificate is still drying, then geographical flexibility might outweigh the advantages of owning a home. Real estate, although a rewarding investment, comes with substantial transaction costs. For homeownership to make economic sense, generally, you should plan to keep the property for a minimum of 5-7 years. Resources: Buying a home requires a strong financial foundation. That foundation involves more than just a stable income. Your credit score, savings, and overall debt are key indicators of your readiness. Falling short in any of these can significantly diminish your borrowing power, affecting the quality of home you can afford. More importantly, being able to hit financial milestones on the path to home ownership helps prove to yourself that you are ready to make the leap. Responsibility: The challenges don't end at the closing table. Even if you don’t have a goal of becoming the next DIY design superstar, homeownership requires ongoing upkeep, repairs, and maintenance. From unexpected plumbing emergencies to seasonal lawn care, be prepared for a litany of “honey-dos” that require your time, energy and additional resources. Plotting Your Course: The 3-5 Year Plan What if you’ve done the soul-searching and concluded that now is not the opportune time to buy a home? That's perfectly okay. Your housing choices don't have to be a binary "own or don't own" decision. Let's strategize on positioning you to make the step into homeownership within the next 3-5 years. 1. Financial Milestones: The first task is defining your financial targets. Aim for a down payment of at least 5% of the anticipated price range you’re considering. Add another 2-3% for closing costs and cushion it with a 2% emergency fund. Your grand total should be around 10% of your projected home's price. 2. Budget Blueprint: Establishing a budget isn't about depriving yourself; it’s about optimizing your resources. Classify your monthly income and expenditures, and discern the nature of each expense. Is it a want or a need? This can help realign your spending behavior with your long-term objectives. 3. Automatic Wealth Building: Automation is your ally here. Leverage recurring monthly transfers from your primary account into a dedicated savings or investment account. This "set and forget" mechanism ensures that you’re consistently paying yourself first, making it easier to live on the remainder while growing your assets. Remember, many tax deferred accounts like a 401k or Roth IRA can be great vehicles for saving for your first home.

At any given time, roughly 65% of American households own their homes. As a group, these homeowners have 40x greater net worth than renters with nearly half of that wealth in home equity. You can probably guess that I believe everyone should own their home. But does that mean every renter should run out and buy a home this weekend? ABSOLUTELY NOT! You have to buy when the time is right in your life. Before we dive into a few simple questions for you to answer to determine IF now is the right time for you, let’s do a quick recap on what we’ve covered over the last few weeks. Self Liquidating Debt - You have to live somewhere. For most people, that means a shelter payment. Homeowners benefit by applying that monthly payment to pay down the mortgage on their home. Renters continue to pay rent on the 1st of the month. Every month. There Is No 30 Year Fixed Rent - More than 90% of homeowners with mortgages use a fixed rate loan. That means that regardless of inflation or home prices, the monthly mortgage remains constant. Owners even have an option to LOWER their monthly payment any time rates drop. On the other hand, renters have faced annual rent increases averaging 3.2% since 1985 . Owners Are Forced to Save - Those 30 year fixed mortgages require a monthly principal payment. Every month, owners make a contribution to their home equity account. And every month that contribution grows until the final payment when the loan is eliminated.The current new mortgage in the US averages just over $400,000 . At current rates, a homeowner with a $400,000 mortgage will reduce their loan balance by over $4000 in the first year and over $56,000 over the first ten. Owners Benefit From Leveraged Appreciation - Over the last 35 years, homes in the US have appreciated 4.2% a year on average. A homeowner making a 10% down payment would see a 42% return on their investment in year 1, increasing over time as equity builds. The Potential for SOME Homeowners To Enjoy Tax Savings - There were some pretty significant changes to the tax code in 2018. These changes had a major impact on homebuyers. Bottom line, the tax benefits of home ownership aren’t as great as what you might expect. Now that we understand the major financial benefits of home ownership, we need to remember that when it comes to making the significant financial commitment of buying a home, timing is everything. The current real estate market has many people asking, "Is now the right time to transition from renting to owning?" To help you answer this question, I've compiled a list of five critical questions you should ask yourself before making this life-changing decision. 1. Job and Income Security: Are You Ready for a Long-term Commitment? One of the first things to consider is the stability of your employment and income. Buying a home is a long-term financial obligation. If you're contemplating job changes, expecting promotions, or even a career switch that could relocate you, weigh these variables carefully. Flexibility in location may be an essential factor for your growing career. The key is being confident in your current income and career trajectory. Owning a home is important, but so is maximizing your earnings and job satisfaction. 2. Credit and Debt: Can You Afford a Home Mortgage? Before venturing into homeownership, take a close look at your credit score and overall debt. You may have seen social media posts about buying with credit scores as low as 580. While this is possible, it’s far from optimal. A low credit score will increase your mortgage rate and fees while limiting the loan programs that are available to you. A healthy credit score and a manageable level of debt will not only make you a more attractive loan candidate but also give you peace of mind that you are ready to become a successful homeowner. 3. Savings: Is Your Financial Cushion Adequate? Owning a home comes with multiple financial responsibilities beyond the monthly mortgage payment. Most buyers will need to have money for a down payment and closing costs. Once you get into a home, it’s important to have a reserve fund for unexpected maintenance and life expenses. Before making the leap, make sure you've saved enough not just to buy the house but also to have a financial cushion afterward. Owning a home is great, but not if it brings along financial stress. 4. Relationship and Family: What Does the Future Hold? A stable family situation is another essential factor. If there is a possibility of significant changes in your relationship status or family size—like a marriage,divorce or children—you'll need to consider how that will affect your housing needs. Perhaps you need to be closer to aging parents or other family members who require care. Factor in these elements when contemplating the location and type of home to buy. 5. Long-term Plans: How Long Will You Stay?  The general rule of thumb is that you should plan on staying in your new home for at least 5-7 years to make the investment worthwhile. Unlike other investments, buying a home can have significant transaction costs. This period allows you enough time to build equity in your home and potentially see its value appreciate. While homes will always appreciate over the long haul, there can be periods of flat or even declining prices. Having a long-term plan ensures you are in a solid financial position when it comes time to sell. If you've answered these questions and feel confident about your answers, then it might be the perfect time for you to transition from renting to owning. If not, it's completely okay; continue renting until your circumstances align better with the responsibilities and commitments that homeownership entails. The bottom line is working on your career and income, saving and investing, and maximizing your credit while maintaining a manageable debt load will serve you well no matter what direction life takes you. As always, if you need personalized advice on mortgages or have questions about the real estate market, please reach out. I’m here to help! Looking forward! Josh

Last week we discussed the 3 primary reasons homeowners build 40x greater net worth than renters. If you missed it, here’s a quick recap: Owners build wealth by: Fixing their shelter cost while rents increase year by year, Accumulating forced savings with monthly principal payments, and Leveraging appreciation by using a small down payment to benefit from the steady increase of a high value asset, their home. (Read the full letter here ) For those of you who have been with me for a while, you’ll remember I used to talk about the 4 Factors that homeowners use to build wealth. Factor #4 was the tax benefits homeowners receive from itemized income tax deductions for their mortgage interest and property taxes. You might ask why I no longer include tax benefits when explaining the reasons why homeowners come out ahead financially. There’s a simple explanation. The Tax Cuts and Jobs Act of 2017, also known as Trump’s Tax Cuts. Today we’re going to dive into the changes to the tax code and see if the tax benefits of homeownership survived or if the 4th Factor is dead and gone. Let’s quickly go through the tax deductions available only to homeowners so you can see what they are and how they work to lower your tax bill. Mortgage interest deduction: Owners get to deduct the interest paid on their mortgage against their taxable income reducing their income taxes owed. Property tax deduction: The tax code allows you to deduct state and local taxes. For homeowners, this includes property taxes. You’ll soon see that the Tax Cuts and Jobs Act of 2017 changed these deductions, reducing their value to many current and prospective homeowners. For others, the benefits went away completely. The biggest change was the reduction in the mortgage interest deduction limit. The Act dropped the limit from $1 million to $750,000 for loans taken out after December 15, 2017. This means that homeowners can only deduct mortgage interest paid on the first $750,000 of mortgage debt. You may say, “No big deal! I was never taking out a million dollar mortgage, or even a $750,000 mortgage, so I’m not affected.” This is true for most of us as the average loan amount in the US was only $358,000 in July 2023 ( per Black Knight Originations Market Monitor ) but many high cost areas in the country have entry level homes starting above this threshold. The second big change made by the Tax Cuts and Jobs Act is a cap on the state and local tax deduction. After 2017, homeowners who itemize their deductions can only deduct up to $10,000 of their state and local taxes. For top wage earners in states with high tax rates, this often means they can no longer deduct their property taxes from their income. This increases their tax bill and eliminates one benefit homeownership had over renting. The BIGGEST change affecting the tax benefits of home ownership from the Tax Cuts and Jobs Act is actually the INCREASE in the standard deduction all taxpayers are eligible for. An increased standard deduction reduces tax bills for everyone regardless of home ownership status. Taxes did not increase for homeowners, it’s just the relative benefit of owning is now less.

Owning a home is more than a white picket fence dream. It's a wise money move. Why? Because homeowners end up a lot richer than folks who rent. Specifically, homeowners enjoy 40x greater net worth than renters. To understand why, let's break down the four factors (really just 3) that lead homeowners to steadily and inevitably grow their net worth. Lock-In Payments: No Inflation Squeeze As we discussed in last week’s letter , your mortgage is what we call "self-liquidating debt." In simple terms? You pay off the loan to finance your purchase over time with money that would otherwise go to your landlord for monthly rent. Let's look at why that's a big win for homeowners. Over time, renters get hit with increasing rent costs. You can see visually in the chart below, that even recessions have not led to lower rents.