Your VA loan is dependent on a variety of factors, including the need for your VA entitlement and enough disposable income to qualify you for the loan. What if your income is not standard salary income, though? Can you qualify on disability compensation income? Luckily, the answer to that question is a resounding “yes”. Here is how to use your disability income to qualify for a VA loan.
How your Disability Compensation Income Works
Disability compensation income is a little different than standard salary income simply because you do not receive the income in exchange for working. Where it is similar, however, is that it is regular and predictable, exactly what the VA wants. In order for your income to qualify you have to prove the following:
- Regular receipt of the income
- The amount of income you receive
- The length of time you anticipate receiving the income
Once you prove the above factors, you can use the income for qualifying matters. What the lender uses your income for is to ensure that you not only have enough money to cover the potential mortgage, but also your other monthly obligations. In addition, the VA wants to see that you have adequate money left over afterwards, which is called disposable income.
As you can see, using your disability income works the same as any other income when it comes to qualifying. The lender will determine your debt-to-income ratio as well as your disposable income amount. The DTI should be less than 41 percent and your disposable income will need to meet the requirements for your area.
Waiving the Funding Fee
The best news about your disability income is that it might qualify you for a waiver on your funding fee, which amounts to 2.15% of your loan amount. If your disability is tied into your service time in the military, your funding fee will likely be waived. If you do not have your disability rating prior to closing on your VA loan, you can request a refund of your funding fee once you receive your disability rating.
Focus on your Qualifying Factors
What you need to focus on the most when you apply for a VA loan is meeting the minimum requirements. Do you have:
- Your Certificate of Entitlement
- Proof of your income
- Proof of your assets
- A credit score above 620
- A debt ratio lower than 41 percent
- Adequate disposable income
- A safe and sanitary home to purchase
As long as you have the above items, you should be able to secure VA financing even with your disability compensation income.
Proving Receipt of Disability Income
Disability income does not provide you with paystubs as you would receive from your regular income. Because of this, you have to prove it in other ways – typically providing the lender with the last 12 months’ worth of your bank statements showing the receipt of your disability income will be enough proof of your income. In some cases, the lender needs the award letter too – what you will need to provide will depend on your exact circumstances.
Disability compensation income is perfectly acceptable on a VA loan and it may even help you save money if you were disabled while in service in the military. The funding fee could be thousands of dollars depending on the amount of your mortgage. For example, a $150,000 would cost you $3,225 in a funding fee; receiving a waiver for that amount could be very advantageous for your situation. If you are unsure about how your disability income will affect your VA loan, talk to various lenders to see how it will affect your chances of getting approved for a loan today.