There are several types of military pay and benefits that could help you qualify for a VA mortgage in the right circumstances. If you have some of these benefits coming your way, don’t forget to include them in your VA loan application data so they can be evaluated as potential verifiable income.
Did you know your monthly military housing allowance could be counted as income? Many borrowers associate this allowance with paying rent on an apartment, but according to the VA loan rulebook, it’s also possible to use it for a VA mortgage loan payment.
“The lender may include a military quarters allowance in effective income if properly verified. In most areas there will be an additional variable housing allowance, which can also be included. The military quarters and variable housing allowances are not taxable income.”
Borrowers should also be careful not to forget their “Subsistence Allowance” and annual clothing allowance.
These are addressed in the VA loan rulebook as follows:
“The lender may include verified allowances in effective income. These allowances are not taxable income...The clothing allowance generally appears on the LES as an annual amount. Convert it to a monthly amount for the loan analysis.”
Other military allowances may be handled on a case-by-case basis. If you are currently receiving what is sometimes called “special pay” such as hazard pay, combat pay, or flight pay, read what VA Pamphlet 26-7 says about how such income might be counted as part of your VA loan application:
“All of these are subject to periodic review and/or testing of the recipient to determine continued eligibility. These types of allowances are considered taxable income by the IRS, unlike housing, clothing, and subsistence allowances. Military allowances may be included in effective income only if such income can be expected to continue because of the nature of the recipient’s assigned duties.”
A borrower who is expected to draw such pay long-term could be cheating themselves by forgetting to include it in the income portion of a VA loan application. It’s never safe to assume the lender will or will not approve this type of income--discuss your special pay with a loan officer and find out what’s likely to happen in your circumstances.