You need income to qualify for a VA loan. If you are still in the military, you likely receive your income from your service. This income may qualify you for a VA loan, but you have to provide proof of the income. Typically, this means providing a Leave and Earnings Statement. Essentially, this is your paystub. You also have to provide a Statement of Service letter, though. This important document helps the underwriter determine if you qualify for the VA loan. It provides the lender with more information than just your income because a loan approval goes beyond how much money you make.
What is the Statement of Service Letter?
The Statement of Service Letter gives the underwriter information they cannot find on your Leave and Earnings Statement. The Statement of Service provides information including the branch of the military you serve, the date your active duty started, any time off you had, and your eligibility for re-enlisting. This helps the underwriter determine the longevity of your income. For example, if you will re-enlist, how long will your service be? Generally, to qualify for a VA loan while active in the military, you need proof of 12-months of future income. If you will not re-enlist and your service ends within 12 months, you need to prove future employment. If you do not have anything lined up, you will have to wait for VA loan approval.
Why is This Letter Required?
Lenders need the Service Letter when you have special circumstances. Think of it as your Verification of Employment. This is the document borrowers who are not in the military need to provide. This helps the lender verify your employment from a third party. The most common reasons a lender needs a Statement of Service Lender includes:
- If there is a chance you will re-enlist
- Your income goes beyond the base pay and will continue for the next year
- If you receive income from the reserves
The letter allows the lender to verify any “other” income and its likelihood to continue.
Why the Letter Matters
The Statement of Service Letter is most important when you are nearing the end of your service. The VA requires lenders to confirm that there are at least 12 months left of verified income to qualify for the VA loan. If you apply for the VA loan with less than 12 months left of your service, as stated in the letter, you cannot use your military income to qualify. In this case, you need to provide proof of employment outside of the military in order to secure a VA loan.
If your letter states you are eligible to re-enlist, you need to provide proof of intent to do so as well. Some lenders require you to wait until you are re-enlisted in order to qualify for the VA loan. This helps them reduce the likelihood of default.
The Structure of the Letter
The structure of the Statement of Service Letter is not closely monitored. As long as the document is on official military letterhead and clearly states the borrowers identifying information, such as the name, social security, date of birth, and branch of military served, it can suffice. In addition, It must include:
- Dates of active duty and separation
- Location of service (current)
- Reason for any time off and the corresponding dates
- Reason for discharge, if applicable
- Re-enlistment information, if applicable
Miscellaneous Documents for VA Approval
In addition to the Statement of Service Letter and the Leaves and Earnings Statements, there are several other documents you need ready for VA approval. The more prepared you are up front, the quicker you can obtain approval for your VA loan. These documents include:
- Personal identification (driver’s license is most common)
- W-2s and tax returns from the most recent year
- Current bank statement to prove receipt of income
- Any military documents pertaining to a transfer, if applicable
The VA Loan is Flexible
VA loans are very flexible to qualify for as long as you provide the official documents as stated above. The VA loan does not require a down payment, has flexible debt ratio requirements, and allows lower credit scores. This makes it easy for those who served our country to own a home. There is also no monthly mortgage insurance – the only fee veterans must pay is the funding fee at the closing. However, if you don’t have the assets to pay the funding fee, you can roll it into your loan.
As you shop around for a VA loan, make sure to inquire check with several lenders. Each lender can create their own requirements. Some lenders have stricter guidelines than others. For example, one lender might accept a 580 credit score while another would prefer a score of at least 620. Don’t despair if one lender turns you down – check with other lenders to see their requirements.
The VA does not fund the loans – the lenders do. The VA simply insures them, which means they protect the lender if veterans default in the future. This is why some lenders are more willing to take a higher risk on a borrower. Try to compile as many compensating factors as you can, such as a few months’ worth of reserves or a low debt ratio. This can help you have a higher chance of approval.