California VA Loan Income Requirements
As with qualifying for any loan—including a California VA Loan—there are many requirements a lender looks at to determine whether an active-duty military or Veteran borrower qualifies for a loan.
Whether you’re looking for a purchase or a refinance loan, you might find it helpful to know how an underwriter would view and evaluate your income. And while income is just one of several items used to determine loan qualification, it’s arguably the most important.
The best way to get a feel for how an underwriter would look at your income is to ask yourself this question: “If I were lending $250,000 of my own money to someone, what would I want to know about them?”
A Math Problem:
Qualifying for a California VA Home Loan is just a math problem. Based on VA Guidelines, the total of your monthly debts (those that show on your credit report, like car payments, student loans, minimum credit card payments, etc.), plus your new estimated house payment (principal/interest/taxes/insurance/HOA, if applicable) can be no more than a certain percentage of your current gross monthly income (see below). A good rule of thumb is that the sum of all of the above can be no more than 45% of the eligible Veteran/military member’s (and spouse’s) gross monthly income (the qualifying percentage can be higher with other good, “compensating” factors in the file).
First, the underwriter looks at your current, verifiable, monthly income on a gross basis (income before taxes, insurance and other deductions are taken out).
For those on a salary or working on an hourly basis for an employer, the underwriter looks at the most recent 30 days of income to determine what’s available/eligible for qualifying. Bonuses received—to be available for qualifying—must have been received for the most recent two years and will be averaged over that period.
For self-employed or commissioned individuals, underwriters look to the tax returns to determine the “net” income available. Because those in this category tend to write off many items to lower their required taxes, the amount of income available to qualify is lower than the gross that’s taken in monthly. The underwriter (per VA Loan Guidelines) looks at the most recent two-years tax returns and averages income over that period.
In addition to the gross monthly income, underwriters look to employment history for the most recent two years, and confirmation from the employer of future or continued employment. A California Veteran doesn’t need to have been with the same company for that period, but they must have been in the same line of work (changing job types or industries is more risky to underwriting as there’s not a track-record of doing a well at the new job yet).
The California VA Underwriting process verifies the previous two years of employment, via W2’s, Federal Tax Returns (1040’s with all the schedules), and Corporate Tax Returns for those with ownership positions in their companies.
There are many different ways for California residents to earn money. Below is a list of just some of the types of income used to qualify for the California VA Loan:
- W2 Income or Self-Employed Income
- Overtime or Bonus Income
- Retirement Income*
- Alimony*, Child Support*, or Separate Maintenance*
- Rental Income
*These types of income must be verified for continuance a minimum of 3 years into the future from the time of loan closing.
When you decide to start the VA loan process, talk to a lender that is a VA Home Loan Specialist. They will let you know what documents they’ll need for qualifying. Your lender will give you a list of documentation they need to begin the qualification process. Remember that the most recent 2 years of history is what’s most important. And while they may ask for additional information and documentation once the underwriter looks at your loan file, it doesn’t mean they’re turning you down.
On the contrary. The underwriter is looking for reasons to say, “yes”, especially to those eligible for the VA loan. Just do your best to comply with the request. There are so many ways to verify your income. A good lender will work with you to help you find the documentation that’s helps get you qualified.
With many different lenders offering California VA loans, don’t stop until you find one with whom you’re comfortable. Above all, make sure you take full advantage of your Veteran Home Loan Benefit. We’d love to help you with that. Just contact us by one of the means on our website.
Home Loan Specialist
Andrew is a Senior Mortgage Banker with years of experience with residential home mortgages. Andrew is proud to specialize in VA Home Loans to help active-duty and retired military personnel realize the dream of home ownership. Andrew and his team are also skilled in Conventional and FHA financing to help homeowners decide on the loan program that suits their needs.
Licensed in CA