Veterans have the great benefit of securing 100% financing for their home purchase. The loan provides simple guidelines and much flexibility. Many people wonder, though, just what is the verification process for income and assets? Does it work the same as other programs?
We take a look at the answer below.
What do Lenders Look For?
The VA approves specific lenders to write loans in their name. In exchange for the approval, lenders must follow the VA’s rules. In particular, this means:
- Ensuring the income is consistent and stable
- Will continue for as long as they can see
- Is enough to cover the mortgage, any current liabilities, and money to live
This is the gist of what lenders need to see when they evaluate your income.
When it comes to assets, you are in luck. Because VA loans allow for 100% financing, you may not have to verify assets for a down payment. The exception to this rule, however, would be any difference between the value and the purchase price, if one exists.
For example, let’s say you agreed to a purchase price of $200,000, but the appraised value comes back at $190,000. You would be responsible for the $10,000 difference. The most the lender can give you is the $190,000; otherwise, they enter the deal ‘upside down.’
Any other money you would need would be to cover closing costs. The VA does not require you to have assets on hand for qualifying purposes. Known as reserves, the VA does not require this. Instead, they focus on the amount of money you have left at the end of the month after paying your bills. This is your disposable income. The VA has certain thresholds you must meet in order to qualify for a loan in regards to your disposable income.
So you know what you need to show, but how do you show it when it comes to income verification?
First, you must prove you have been with the same employer for at least 2 years. If you have been with your employer for less than 2 years, you must also prove your previous employment to show a total of 2-year employment history. You must also provide an explanation regarding why you changed jobs. It works best if your new job is in the same industry and has similar pay as the previous job in order to avoid any further questioning from the underwriter.
If you did change jobs outside of the same industry, be prepared to have proof as to why you can succeed. For example, did you go to school or special training for this new job? Maybe it is a job that is within your degree wheelhouse, but it took you a while to get a job in your field? These are just a few common examples of what the VA/lender will accept.
You must then verify your income, which you can do with:
- Written Verification of Employment completed by your employer
- Paystubs covering the last month of employment
- W-2s from the last 2 years
The VOE and paystubs must match in regards to your weekly/monthly income as well as your year-to-date income. If there are discrepancies, the underwriter will have further questions. Both the VOE and the paystubs should not be more than 120 days old and must be originals.
If you need assets to close your loan or to put down on the home, you will need to verify them as well. Typically, lenders will ask that a Verification of Deposit form be completed. In lieu of the VOD, you can supply the last two bank statements, including all pages. This shows the lender any recent deposits and withdrawals you have made.
Don’t worry, they aren’t judging where you spend your money. What they are after is any large deposits that do not coincide with your income. This could be indicative of a loan that you will owe payments on that could affect your debt ratio and ability to afford the new mortgage.
If you do have any large deposits that are not your income, be ready to explain them with a formal Letter of Explanation and proof of where the funds originated to prove they are not a loan.
Typically, lenders can accept faxed or uploaded documents for income and asset verification. It is up to the lender’s discretion, however. Lenders use a case-by-case basis in determining the validity of the paperwork. In a perfect world, they would get information directly from your employer and bank so there is no question about the validity of the documents. If that’s not an option, providing your own documents is acceptable as long as they have the proper signatures and/or letterheads to prove that they are official.Click to See the Latest Mortgage Rates»