Mitchell6024/quickb · Datasets at Hugging Face

id stringlengths 36 36	text stringlengths 1 400	source stringclasses 1 value
43396c36-66b0-4fa6-b5d6-f7aa60232704	An automobile lease or loan payments are not subtracted from the borrower’s income; they are considered part of the borrower’s recurring monthly debts/obligations in Section D on VA Form 26-6393, Loan Analysis. Continued on next page 4-9 VA Lenders Handbook M26-7 Chapter 4: Credit Underwriting Topic 2: Income – Required Documentation and Analysis, continued j.	VA_Guidelines.txt
2da2464a-0238-4132-b497-eef58e61a69d	Self-Employment Income Analysis Guidelines Obtain a current financial statement in an industry recognized accounting format including: · Year-To-Date Profit and Loss statement (if the most recent year’s tax return has not yet been prepared, provide a profit and loss statement for that year), · current Balance Sheet, and · individual income tax returns, signed and dated, plus all applicable	VA_Guidelines.txt
6c33a530-53f3-4536-bc45-f3c23ee86380	returns, signed and dated, plus all applicable schedules for the previous 2 years (or additional periods if needed to demonstrate a satisfactory earnings record)	VA_Guidelines.txt
89b1c1af-4112-4293-b190-b1cc4d3fe482	. · If the business is a corporation or partnership, include copies of the signed federal business income tax returns for the previous 2 years with all applicable schedules, and a list of all stockholders or partners showing the interest each holds in the business.	VA_Guidelines.txt
2ab2bdc7-3ff9-4c76-a726-86fbd31b585b	The financial statements must be sufficient for an underwriter to determine the necessary information for loan approval. Financial Statements, including a year-to-date Profit and Loss Statement and Balance Sheet must be completed after one-half of the tax-year has passed to verify current income and stability of the income.	VA_Guidelines.txt
bdd4299e-c080-4977-8469-e052a27c0518	The lender may require an accountant or Certified Public Accountant-prepared financial statements if needed to make such a determination due to the nature of the business or the content of the financial statements Analyze Income Derived from Self-Employment Generally, income from self-employment is considered stable when the borrower has obtained such income for at least 2 years.	VA_Guidelines.txt
4d7c725c-ed75-45f5-903f-a2aa4b6e8b0c	Less-than-2-years cannot usually be considered stable unless the borrower has had previous related employment and/or specialized training. Less-than-1-year can rarely qualify; however, in-depth development is required for a conclusion of stable income on less-than-1-year cases. Determine whether the business can be expected to generate sufficient income for the borrower’s future needs.	VA_Guidelines.txt
1fbefe3d-f215-412f-a308-03103b739801	If the business shows a steady or significant decline in earnings over the period analyzed, the reasons for such decline must be analyzed to determine whether the trend is likely to continue or be reversed.	VA_Guidelines.txt
3fb6c5d2-42ea-46ca-b832-e684c92ce6cf	If it is difficult to determine the probability of continued operation, obtain documentation on the viability and potential future earnings, and an explanation of the function and financial operations of the business from a qualified party. Continued on next page 4-10 VA Lenders Handbook M26-7 Chapter 4: Credit Underwriting Topic 2: Income – Required Documentation and Analysis, continued j.	VA_Guidelines.txt
3302dfbe-b675-4cb7-8785-e03ab00fd740	Self-Employment Income Analysis Guidelines, continued Deductions and Expenses Claimed on Tax Returns Depreciation claimed as a deduction on the tax returns and financial statements of the business may be included in effective income. Business or roll over losses must be considered from all tax returns.	VA_Guidelines.txt
7f5e0441-7dee-4ee1-9e3b-1fb3994d95c2	What is reported to the IRS on a joint return must be used when applying for a federally guaranteed loan. On a joint tax return, the loss must be deducted from the borrower’s income in both community and non-community property states.	VA_Guidelines.txt
0e01870e-790c-4cfd-984b-c2ed1effaf1f	On a joint tax return, when a borrower and co-borrower have been faced with business losses, the Veteran/borrower and his/her spouse may want to consider both being on the loan in order to potentially qualify. The credit of both borrowers will be considered. k. Active Military Borrower’s Income For active-duty military borrowers, a Leave and Earnings Statement (LES) is required instead of a VOE.	VA_Guidelines.txt
89b20c13-822b-4370-8826-8aa1dac71da6	The LES must be an original, electronic, or a copy certified by the lender to be a true copy of the original. The LES must furnish the same information as a VOE and must be no more than 120 days old (180 days for new construction), from the date of closing. For loans closed automatically, the date of the LES must be within 120 days of the date the note is signed (180 days for new construction).	VA_Guidelines.txt
3aabd2f0-e07a-4ed7-847b-95846dde13c6	For prior approval loans, the date of the LES must be within 120 days of the date the application is received by VA (180 days for new construction). In addition, identify servicemembers who are within 12 months of release from active duty or the end of their contract term.	VA_Guidelines.txt
4aac719f-35b8-4fa5-a77b-ce9c3f28b538	For an enlisted servicemember, find the date of expiration (ETS) of the borrower’s current contract for active service on the LES. For National Guard or Reserve members, find the ETS of the borrower’s current contract on the LES. Also, if a National Guard or Reserve member is currently serving on active duty, also identify the expiration date of the current active-duty tour.	VA_Guidelines.txt
e225d9aa-7b9a-4fa0-8035-4035daea7b5d	If the date is within 12 months of the projected date that the loan will close, the loan package must also include one of the following items, or combinations of items, to be acceptable: · documentation that the servicemember has already re-enlisted or extended his/her period of active duty to a date beyond the 12-month period following the projected closing of the loan, or · documentation that	VA_Guidelines.txt
41ca1c3c-3c17-4271-b0e3-d5f42232fc15	closing of the loan, or · documentation that the servicemember has already re-enlisted or extended his/her period of active-duty service to a date beyond the 12-month period following the projected closing of the loan, or Continued on next page 4-11 VA Lenders Handbook M26-7 Chapter 4: Credit Underwriting Topic 2: Income – Required Documentation and Analysis, continued k	VA_Guidelines.txt
a42bf6c7-5a6c-4710-b0a5-156ca31c579d	.	VA_Guidelines.txt
0110b722-bc6b-4ebf-a0d6-455c96e508df	Active Military Borrower’s Income, continued · verification of a valid offer of local civilian employment and/or verification of military retirement income following the release from active-duty service, or · verification of a valid offer of local civilian employment and/or verification of military retirement income following the release from active-duty service, or · a statement from the	VA_Guidelines.txt
36886534-e16a-493c-97ae-5ebe565bd7e9	active-duty service, or · a statement from the servicemember that he/she intends to re-enlist or extend his/her period of active-duty service to a date beyond the 12- month period, plus (1) a statement from the servicemember’s commanding officer confirming that the servicemember is eligible to re-enlist or extend his/her active-duty service as indicated, and (2) the commanding officer has no	VA_Guidelines.txt
8f945b45-654e-42f1-bc4b-48ee2e1f2368	indicated, and (2) the commanding officer has no reason to believe that such re-enlistment or extension of active-duty service will not be granted, or · documentation of other unusual strong positive underwriting factors, such as a downpayment of at least 10 percent from the borrower’s own assets (not a gift), a minimum of 6 months PITI, in cash, after the downpayment from the borrower’s own	VA_Guidelines.txt
3f229028-0346-42bb-aee4-74ab6b282b23	after the downpayment from the borrower’s own assets (not a gift) or clear evidence of strong ties to the community coupled with a non- military spouse’s income so high that only minimal income from the active-duty servicemember is needed to qualify	VA_Guidelines.txt
366b330b-c233-401c-88bb-265de6248d91	.	VA_Guidelines.txt
2fb0d0f5-0cdc-4e9c-aa3b-9ce8a800b7e3	If an Officer has an ETS date listed as 888888 or 000000 on his or her LES, the above documentation is not required unless there is evidence that the Officer has resigned his or her commission. Example: An Active Duty Veteran’s LES indicates her ETS date listed on her LES is 171031 (October 31, 2017) and the projected date of closing is October 1, 2017.	VA_Guidelines.txt
d456c52f-7ca6-4d58-9145-74ef5a990144	Therefore, one of the above items is needed to verify future income since her ETS date is less than 12 months from the projected date of closing. Example: A member of the Reserves has been called to Active Duty. The ETS date on his LES indicates 181031 (October 31, 2018); however, his active duty orders indicate his active duty tour will not exceed the next 60 days.	VA_Guidelines.txt
ef91ba88-126d-46ec-a16c-4737841fcaf7	Therefore, since he will be leaving active duty before 12 months of the projected closing date, the active-duty income cannot be considered, and his civilian employment and drill duty will need to be considered.	VA_Guidelines.txt
59056e7a-4845-45d9-9986-25db5a1adaf0	Example: An Active Duty Veteran’s LES indicates his ETS date is less than 1 month from the anticipated date of closing, and he indicates he will be receiving military retirement and has accepted civilian employment. Verify his future retirement income from the Department of Defense and verify future civilian employment with the Veteran’s new employer.	VA_Guidelines.txt
120b96ff-dfd6-4df2-99dc-7088c94aa07b	Analysis of Base Pay Consider the borrower’s base pay as stable and reliable unless the borrower is within 12 months of release from active-duty service. Analyze the additional documentation submitted.	VA_Guidelines.txt
6b3ed1df-2b35-408c-839f-d4c01bd816fc	Analyze the additional documentation submitted. If the borrower will not be re-enlisting, determine whether the borrower’s anticipated source of income is stable and reliable, and/or unusually strong underwriting factors compensate for any unknowns regarding future sources of income.	VA_Guidelines.txt
0e9afbd2-47b8-4080-ba90-581d0e313840	Continued on next page 4-12 VA Lenders Handbook M26-7 Chapter 4: Credit Underwriting Topic 2: Income – Required Documentation and Analysis, continued k. Active Military Borrower’s Income, continued If an Officer has an ETS date listed as 888888 or 000000 on his or her LES, the above documentation is not required unless there is evidence that the Officer has resigned his or her commission.	VA_Guidelines.txt
86b71745-19f3-495b-9447-749aff9691b4	Analysis of Military Quarters Allowance/ Basic Allowance for Housing (BAH) 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. The lender must verify the amount of BAH the Veteran will receive.	VA_Guidelines.txt
55759ae3-1305-47a4-96a0-62130bde768a	The BAH amount will change from one duty station to another. Ensure that the borrower meets the occupancy requirements set forth in Chapter 3 of this handbook. Verification and Analysis of Basic Allowance for Subsistence (BAS) and Clothing Allowances Any subsistence (rations) and clothing allowances are indicated on the LES. The lender may include verified allowances in effective income.	VA_Guidelines.txt
3810239c-4ba7-4054-9a45-1ac79bf362c0	These allowances are not taxable income. The clothing allowance generally appears on the LES as an annual amount. Convert the annual amount to a monthly amount for the Loan Analysis.	VA_Guidelines.txt
0b9aee52-7bb8-431b-8d29-8ecf0b9d2ea4	Verification and Analysis of Other Military Allowances To consider a military allowance in the underwriting analysis, obtain verification of the type and amount of the military allowance, how long the borrower has received it and the continuance into the foreseeable future.	VA_Guidelines.txt
ccf40226-a4d6-4396-9535-56264a52e199	Military allowances may be included in effective income only if such income can be expected to continue because of the nature of the borrower’s assigned duties.	VA_Guidelines.txt
babd194b-e375-4dd0-a11c-033668ac17e3	Such allowances include, but are not limited to: · proficiency pay, such as linguistic, parachute, scuba, flight or hazard pay, and · overseas or combat pay (sea pay, submarine, etc.) All types of allowances above are subject to periodic review and/or testing of the recipient to ascertain whether eligibility for such pay will continue.	VA_Guidelines.txt
0a0c87fe-c55c-4584-8f28-8937a6897619	Only if it can be shown that such pay has continued for a prolonged period and can be expected to continue because of the nature of the recipient's assigned duties, should the income be added to base pay. Contact the borrower’s chain of command if there are questions regarding the continuance of the income.	VA_Guidelines.txt
5f181909-0d15-4a81-83dd-dcf9abbbd65b	If the duration of the military allowance cannot be determined, this source of income may still be used to offset short term obligations of 6 to 24 months duration. Consult the IRS to determine if any allowances for pay are considered taxable income by the IRS, unlike housing, clothing, and subsistence allowances.	VA_Guidelines.txt
c55bd743-f106-4d2d-a58f-806ca8c46f45	Continued on next page 4-13 VA Lenders Handbook M26-7 Chapter 4: Credit Underwriting Topic 2: Income – Required Documentation and Analysis, continued l.	VA_Guidelines.txt
8b2f996d-84fc-4fb4-964b-03328531da7c	Income and Analysis of Income from Service in the Reserves or National Guard Income derived from service in the Reserves or National Guard may be used if the borrower has served in such capacity for a period of time sufficient to indicate a good probability that such income will continue beyond 12 months. The total period of active-duty and reserve service may be helpful in this regard.	VA_Guidelines.txt
c6aa4a90-e31b-4222-b0f9-912bbd5131d2	Otherwise, this income may be used to offset obligations of 6 to 24 months duration. Income from Recently Activated Members of the Reserve or National Guard Lenders must consider if a borrower, whose income is being used to qualify for a loan, may have a change in income due to participation in a Reserves/National Guard unit subject to activation.	VA_Guidelines.txt
08185892-92e0-4937-9e3e-e36befca7551	If an activated Reserves/National Guard member applies for a loan, they must present orders indicating their current active duty tour is not to exceed 12 months. Example: The borrower’s full-time civilian employment is $3,000 per month. The borrower’s current income from the Reserves due to activation is $3,500 per month and orders are for 12 months.	VA_Guidelines.txt
083b20a3-64da-4069-9c02-6a130872130e	Since the borrower’s full-time civilian employment is only $3,000 per month, the $3,000 should be used to qualify the borrower. There are not any clear-cut procedures that can be applied to all cases.	VA_Guidelines.txt
719878d9-7c48-4afe-ad90-3c8faf2c5566	Evaluate all aspects of each individual case, including credit history, accumulation of assets, overall employment history, and make the best decision for each loan regarding the use of income in qualifying for the loan. It is very important that loan files be carefully and thoroughly documented, including any reasons for using or not using Reserve/National Guard income in these situations.	VA_Guidelines.txt
0dc0206a-e20d-4178-872c-66c1335e62d6	As a lender, the goal is to provide the Veteran their benefit without placing him/her in a financial hardship. m. Verification and Analysis of Income of Recently Discharged Veterans or Veterans to be Discharged from the Military See the Income from Non-Military Employment in Topic 2, subsection e of this chapter for verification requirements.	VA_Guidelines.txt
83ab1082-c3f4-444b-bea9-b078ac13c564	Obtain verification that any of the following income types apply: · employment income, · retirement income, and/or · VA disability income. VA disability income is considered a benefit and does not need to be documented for the likelihood of continuance.	VA_Guidelines.txt
ee6f68e4-591e-44b9-a7dd-b2e990a385ae	Continued on next page 4-14 VA Lenders Handbook M26-7 Chapter 4: Credit Underwriting Topic 2: Income – Required Documentation and Analysis, continued m. Verification and Analysis of Income of Recently Discharged Veterans or Veterans to be Discharged from the Military, continued VA disability income verification will be placed on the COE.	VA_Guidelines.txt
8b2616ec-4523-4448-965a-12937058f907	However, there are some instances where this income is not placed on the COE which may include if the Veteran: · will be discharging within the next 6 months from the military and has completed a Physical Exam Board (PEB) or Medical Review Board (MEB) and will be filing for VA disability while still on active duty, · has recently filed for VA disability and VA’s Compensation Service has not yet	VA_Guidelines.txt
6a7e564c-a721-4ce9-9128-07484a74b7dc	and VA’s Compensation Service has not yet made a determination and would be entitled to receive VA disability benefits, · would be entitled to receive VA disability benefits, but for the receipt of retired pay, · has received VA disability benefits in the past, or · is an unmarried surviving spouse of a Veteran who is eligible for or receiving qualifying Disability and Indemnity Compensation	VA_Guidelines.txt
0db314ec-ba02-44cb-9b9e-4b8433015f11	qualifying Disability and Indemnity Compensation (DIC), or · is in receipt of a VA nonservice connected pension, or · has a VA-appointed Fiduciary to handle financial matters	VA_Guidelines.txt
ac733c40-3414-482f-8fa1-7249ffc5170d	.	VA_Guidelines.txt
aa670dd0-5f93-4d53-984c-f6798f7ced41	If the Veteran falls under one of the above categories, perform the following: · Submit by fax VA Form 26-8937, Verification of VA Benefits, to the VA Regional Loan Center (RLC) where the subject property is located.	VA_Guidelines.txt
bfcf51ec-5c40-43a0-8cb7-6ef4228362fa	VA will complete and return the form to the lender by return fax. · Provide any supporting documents, including the COE, if it states to send VA Form 26- 8937, Verification of Benefits to VA, to verify a Veteran’s monthly income from VA.	VA_Guidelines.txt
6fa2c72b-4cbe-40d4-ab4b-771c1fdafd7a	Please note that if VA’s Compensation Service has not yet issued a memo rating and/or completed a claim for a Veteran, then the amount the Veteran may receive in the future cannot be determined until the claim has been completed. Until the Veteran begins receiving the monthly award, the amount cannot be placed on the COE.	VA_Guidelines.txt
a66d269d-e453-47b7-9f12-4a51bfcaa6da	A VA awards letter can be used to verify the amount and date a future monthly VA compensation award will begin. However, the COE may be updated to reflect if the Veteran is exempt from paying the VA funding fee on a future disability award. See Chapter 8 of this handbook for funding fee exemptions.	VA_Guidelines.txt
654a8cfb-743d-4d33-9fc6-6f45925298c2	The loan cannot be submitted for prior approval, or approved under the automatic procedure, until the lender obtains the completed form from VA when the Veteran or surviving spouse is under one of the above categories in subsection m of this topic. The lender must maintain the completed form with the loan package.	VA_Guidelines.txt
9e476412-a059-4338-82e8-8c49bfa83526	If the form indicates that the borrower receives a non service-connected pension or has a VA Fiduciary, the loan cannot be closed automatically. The loan must be uploaded in WebLGY for prior approval. See Chapter 5 of this handbook for the necessary documentation that must be submitted to VA. VA must review, underwrite, and issue a Certificate of Commitment before the loan can close.	VA_Guidelines.txt
349ef62f-ca1d-4674-b4ae-f87f1b98dab3	See Chapter 5 of this handbook for prior approval procedures. Continued on next page 4-15 VA Lenders Handbook M26-7 Chapter 4: Credit Underwriting Topic 2: Income – Required Documentation and Analysis, continued m.	VA_Guidelines.txt
501a2b52-2101-4da9-87e5-d074628fc473	Verification and Analysis of Income of Recently Discharged Veterans or Veterans to be Discharged from the Military, continued VA’s Pension Service may also have to review and/or approve the application in addition to Loan Production. The VA RLC will coordinate with the Pension Service upon receipt of the underwriting package.	VA_Guidelines.txt
53ac24ee-e001-4197-ab86-ed76a8f35e9b	Allow for additional processing time of a prior approval loan application when Compensation and/or Pension Service must also review. Analysis of Prospects for Continued Employment Cases involving recently discharged Veterans often require the underwriter to exercise a great deal of judgment and flexibility in determining whether the employment income will continue in the foreseeable future.	VA_Guidelines.txt
24e6985a-0ad1-4f1a-9261-f2d9d463d8c2	This is because some Veterans may have little or no employment experience other than their military occupation. Continuity of employment is essential for a Veteran with no retirement income, or insufficient retirement income, to support the loan obligation.	VA_Guidelines.txt
00dbd761-ff55-4494-ae3f-6576f2ef73c8	If the duties the borrower performed in the military are similar or directly related to the duties of the present position, use this as one indicator that the employment is likely to continue. Most cases fall somewhere between these extremes. Fully develop the facts of each case to make a determination.	VA_Guidelines.txt
08a968c3-2ebe-426c-b3f3-8cdf034d9f88	The guidelines under Self-Employment Income in Topic 2, subsection j of this chapter provide guidance for a recently discharged Veteran who is self-employed. n. Rental Income When all or a portion of the borrower’s income is derived from rental income, documentation and verification of the income are necessary to determine the likelihood of continuance.	VA_Guidelines.txt
76910410-5bd9-452e-b721-dad464ecdc3a	Verification of Rental Offset of the Property Occupied Prior to the New Home Obtain a copy of the rental agreement for the property, if any. Analysis using Rental Offset of the Property Occupied Prior to the New Loan Use the prospective rental income only to offset the mortgage payment on the rental property, and only if there is not an indication that the property will be difficult to rent.	VA_Guidelines.txt
fc2a005a-e7dc-4627-a1bf-0b07c7668d50	This rental income may not be included in effective income. Obtain a working knowledge of the local rental market. If there is not a lease on the property, but the local rental market is very strong, the lender may still consider the prospective rental income for offset purposes. Provide a justification on VA Form 26-6393, Loan Analysis.	VA_Guidelines.txt
80cdbd72-a591-46ba-808b-f475b527e322	Reserves are not needed to offset the mortgage payment on the property the Veteran occupies prior to the new loan. Continued on next page 4-16 VA Lenders Handbook M26-7 Chapter 4: Credit Underwriting Topic 2: Income – Required Documentation and Analysis, continued n.	VA_Guidelines.txt
ceb722ea-3087-412b-ac01-6b910568e599	Rental Income, continued Example [Rental Offset of the Property Occupied Prior to the New Loan]: The Veteran’s current home has a VA mortgage with a monthly PITI payment of $1,000. Bonus entitlement is being used to purchase a new primary residence and the Veteran will rent the previous home for $1,200 monthly upon closing of the new home.	VA_Guidelines.txt
c4c65a56-4dec-4986-a3a1-8b5c873c77d4	The payment of $1,200 can be used to offset the existing mortgage payment, if all the above conditions are met. The additional rent received in excess of the mortgage payment cannot be used as effective income.	VA_Guidelines.txt
5d11b425-6331-43e0-8bf8-0ca64236d339	Verification of Rental Property Income Obtain the following: · documentation of cash reserves totaling at least 3 months mortgage payments (PITI), and · individual income tax returns, signed and dated or lender obtained tax transcripts, plus all applicable schedules for the previous 2 years, which show rental income generated by the property.	VA_Guidelines.txt
b23c049c-90b1-458c-afa7-29cb197529c3	If the borrower has multiple properties, the borrower must have 3 months PITI documented for each property to consider the rental income. If there is not a lien on the property, 3 months reserves to cover expenses such as taxes, hazard insurance, flood insurance, homeowner’s association fees, and any other recurring fees should be documented for the property(ies).	VA_Guidelines.txt
439c074c-8b05-4710-91cc-bf18ee6028a6	Equity in the property cannot be used as reserves. Cash proceeds from a VA refinance cannot be counted as the required PITI on a rental property. The reserve funds must be in the borrower’s account before the new VA loan closes. Gift funds cannot be used to meet reserve requirements.	VA_Guidelines.txt
d5dda654-a69a-4442-a8e5-3a8bf9561b74	Analysis of Rental Property Income Each property(ies) must have a 2-year rental history itemized on the borrower’s tax return. Property depreciation claimed as a deduction on the tax returns may be included in effective income.	VA_Guidelines.txt
35073d24-23b1-4a31-b3d3-af73ffcbf3cc	If after adding depreciation to the negative rental income, the borrower still has rental loss, the negative income should be deducted from the overall income as it reduces the borrower’s income. If rental income will not, or cannot be used, then the full mortgage payment should be considered and reserves do not need to be considered.	VA_Guidelines.txt
065ed00a-ec4f-4746-a660-04d3a9686ca0	Continued on next page 4-17 VA Lenders Handbook M26-7 Chapter 4: Credit Underwriting Topic 2: Income – Required Documentation and Analysis, continued n. Rental Income, continued Verification of Multi-Unit Property Securing the VA loan The Veteran/borrower must occupy one unit as his/her residence.	VA_Guidelines.txt
2d722c14-d9d6-4a89-b6bf-cfc0485f4028	For purposes of determining the VA guaranty, lenders are instructed to reference only the One-Unit Limit column in the FHFA Table “Fannie Mae and Freddie Mac Maximum Loan Limits for Mortgages, located at https://www.fhfa.gov/DataTools/Downloads.	VA_Guidelines.txt
55f832c5-7ec5-4d2b-a230-bc3997128f74	Verify cash reserves totaling at least 6 months mortgage payments (PITI), and documentation of the borrower’s prior experience managing rental units and/or use of a property management company to oversee the property.	VA_Guidelines.txt
c67514fe-29fd-48e6-90de-7bb6566337f3	Analysis of Multi-Unit Property Securing the VA loan (Veteran will occupy one unit as his/her residence) Include the prospective rental income in effective income only if: · the borrower has a reasonable likelihood of success as a landlord, and · cash reserves totaling at least 6 months mortgage payments (PITI).	VA_Guidelines.txt
a06b2a07-9139-4ca9-bde3-97fe500f7adf	If each unit is separate and not under one mortgage, 6 months PITI must be verified for each separate unit. Equity in the property cannot be used as reserves to meet PITI requirements. This must be the borrower’s own funds, not a gift. Cash proceeds from a VA regular “Cash-Out” refinance cannot be counted as the required PITI on a rental property.	VA_Guidelines.txt
3b0f93db-e394-4c62-8ce3-f4e717b4a232	The reserve funds must be in the borrower’s account before the new VA loan closes. The amount of rental income to include in effective income is based on 75 percent of the amount indicated on the lease or rental agreement unless a greater percentage can be documented (existing property).	VA_Guidelines.txt
0b6fb37b-655f-4b0c-b0ba-a68921612bb9	The amount of rental income to include in effective income is based on 75 percent of the amount indicated on the appraiser’s opinion of the property’s fair monthly rental (proposed construction). Continued on next page 4-18 VA Lenders Handbook M26-7 Chapter 4: Credit Underwriting Topic 2: Income – Required Documentation and Analysis, continued o.	VA_Guidelines.txt
15b8418a-5517-44a9-af67-d919b074449a	Temporary Boarder Rental Income Single Family Residence The verification of temporary boarder rental income requires the following: · individual income tax returns, signed and dated, plus all applicable schedules for the previous 2 years, which show boarder income generated by the property, and · the rental cannot impair the residential character of the property and cannot exceed 25 percent of	VA_Guidelines.txt
c459ac99-454f-4fd0-9758-102dab805c32	of the property and cannot exceed 25 percent of the total floor area	VA_Guidelines.txt
249e5b15-88f4-41de-bd46-9726ca5937c6	.	VA_Guidelines.txt
064790ab-9144-4b9c-b545-22b6ac62bc22	Analysis of Temporary Boarder Rental Income Include rental income in effective income only if the borrower has a reasonable likelihood of continued success due to the strength of the local market. Provide a justification on VA Form 26-6393, Loan Analysis. PITI reserves are not necessary to consider the income, and all the income may be used in the analysis. p.	VA_Guidelines.txt
1b11f5d4-981a-43b5-94f2-fba08dd73a78	Alimony, Child Support, and Maintenance Payments Verify the income if the borrower wants it to be considered. The payments must be likely to continue for at least 3 years from the anticipated closing date to include them in effective income.	VA_Guidelines.txt
a8527085-61eb-4bf2-9802-d3ce210ec94c	Factors used to determine whether the payments will continue include, but are not limited to: · whether the payments are received pursuant to a written agreement or court decree, · the length of time the payments have been received, · the regularity of receipt, and · the availability of procedures to compel payment. See “ECOA Considerations” in Topic 2, subsection d of this chapter. q.	VA_Guidelines.txt
71e3ba7b-9fca-4784-9ba6-8f33e19f448b	Automobile or Similar Allowances Generally, automobile allowances are paid to cover specific expenses related to a borrower’s employment, and it is appropriate to use such income to offset a corresponding car payment.	VA_Guidelines.txt
6196c646-8b5c-43ae-b8be-3bf0aff19097	However, if the borrower reports an allowance as part of monthly qualifying income, it must be determined if the automobile expense reported on IRS Form 2106 should be deducted from income or treated as a liability. If the reported expense is less than the automobile allowance, the amount can be treated as income and added to borrower’s monthly income.	VA_Guidelines.txt
6d4623bb-acb5-4975-8dd3-0f19bae9945b	If the reported expense exceeds the automobile allowance, the amount must be deducted from income as a net calculation in Section D on VA Form 26-6393, Loan Analysis. Likewise, any other similar type of allowance received by the borrower should be considered with regards to the tax returns for determination of an offset of the corresponding obligation, as income, or as an expense.	VA_Guidelines.txt
078cec8b-8ebf-4e24-8f0f-3f788eb0bddf	Continued on next page 4-19 VA Lenders Handbook M26-7 Chapter 4: Credit Underwriting Topic 2: Income – Required Documentation and Analysis, continued r.	VA_Guidelines.txt
a434b99e-60a9-45c1-86cf-6ae4215e17f4	Other Types of Income While not all types of income can be listed, documentation of income must support the history of receipt and the likelihood or continuance of the income for at least 3 years from the anticipated closing date to include in effective income.	VA_Guidelines.txt
bc1d810c-f14d-4675-b493-c5c3293d11e0	Otherwise, consider whether it is reasonable to use the income to offsets short term obligations of 6 to 24 months duration	VA_Guidelines.txt
3d8a4e11-9bcf-444a-b0c4-d0ce393d8930	. “Other” types of income which may be considered as effective income include, but are not limited to: · pension or other retirement benefits, · disability income, · dividends from stocks or other, · interest from bonds, savings accounts, or others, · royalties, · notes receivable, and · trusts VA disability income is considered a benefit and does not need to be documented for the likelihood of	VA_Guidelines.txt
cfa1283a-5b25-416b-b64b-159586c05b06	not need to be documented for the likelihood of continuance	VA_Guidelines.txt
a7a22a5d-d918-4c78-b597-d250d546046b	.	VA_Guidelines.txt
be51c8d2-41f7-4fda-9647-190ccebd0697	A COE will generally have the amount of VA disability income listed, however, see Topic 2, subsection m of this chapter for exceptions. A VA award letter or bank statement may also verify the current monthly amount received. The lender may include verified income from public assistance programs in effective income if evidence indicates it will likely continue for 3 years or more.	VA_Guidelines.txt
3a4ed534-c285-4ba2-b1bb-2b187a65e0d9	The lender may include workers’ compensation income that will continue for at least 3 years from the anticipated closing date if the borrower chooses to reveal it. The lender may include verified income received specifically for the care of any foster child(ren), only to balance the expenses of caring for the foster child(ren) against any increased residual requirements.	VA_Guidelines.txt
b298dcdf-0395-4565-ac2a-987de519c63a	Example: The borrower(s) receive a stipend paid by the county or State for two foster children living in the residence. Instead of considering a family size of four, a family size of two should be used to determine the residual income requirement.	VA_Guidelines.txt
30500ad9-1a63-44a7-b4ee-a9d4a4710ab4	Do not include temporary income items such as VA educational allowances (including the Post 9/11 GI Bill benefit) and unemployment compensation in effective income. Exception: If unemployment compensation is a regular part of a borrower’s income due to the nature of his/her employment (for example, seasonal work), it may be included.	VA_Guidelines.txt
35305046-fe83-444e-b78c-1626e4f50634	Continued on next page 4-20 VA Lenders Handbook M26-7 Chapter 4: Credit Underwriting Topic 2: Income – Required Documentation and Analysis, continued r.	VA_Guidelines.txt

43396c36-66b0-4fa6-b5d6-f7aa60232704

An automobile lease or loan payments are not subtracted from the borrower’s income; they are considered part of the borrower’s recurring monthly debts/obligations in Section D on VA Form 26-6393, Loan Analysis. Continued on next page 4-9 VA Lenders Handbook M26-7 Chapter 4: Credit Underwriting Topic 2: Income – Required Documentation and Analysis, continued j.

VA_Guidelines.txt

2da2464a-0238-4132-b497-eef58e61a69d

Self-Employment Income Analysis Guidelines Obtain a current financial statement in an industry recognized accounting format including: · Year-To-Date Profit and Loss statement (if the most recent year’s tax return has not yet been prepared, provide a profit and loss statement for that year), · current Balance Sheet, and · individual income tax returns, signed and dated, plus all applicable

VA_Guidelines.txt

6c33a530-53f3-4536-bc45-f3c23ee86380

returns, signed and dated, plus all applicable schedules for the previous 2 years (or additional periods if needed to demonstrate a satisfactory earnings record)

VA_Guidelines.txt

89b1c1af-4112-4293-b190-b1cc4d3fe482

. · If the business is a corporation or partnership, include copies of the signed federal business income tax returns for the previous 2 years with all applicable schedules, and a list of all stockholders or partners showing the interest each holds in the business.

VA_Guidelines.txt

2ab2bdc7-3ff9-4c76-a726-86fbd31b585b

The financial statements must be sufficient for an underwriter to determine the necessary information for loan approval. Financial Statements, including a year-to-date Profit and Loss Statement and Balance Sheet must be completed after one-half of the tax-year has passed to verify current income and stability of the income.

VA_Guidelines.txt

bdd4299e-c080-4977-8469-e052a27c0518

The lender may require an accountant or Certified Public Accountant-prepared financial statements if needed to make such a determination due to the nature of the business or the content of the financial statements Analyze Income Derived from Self-Employment Generally, income from self-employment is considered stable when the borrower has obtained such income for at least 2 years.

VA_Guidelines.txt

4d7c725c-ed75-45f5-903f-a2aa4b6e8b0c

Less-than-2-years cannot usually be considered stable unless the borrower has had previous related employment and/or specialized training. Less-than-1-year can rarely qualify; however, in-depth development is required for a conclusion of stable income on less-than-1-year cases. Determine whether the business can be expected to generate sufficient income for the borrower’s future needs.

VA_Guidelines.txt

1fbefe3d-f215-412f-a308-03103b739801

If the business shows a steady or significant decline in earnings over the period analyzed, the reasons for such decline must be analyzed to determine whether the trend is likely to continue or be reversed.

VA_Guidelines.txt

3fb6c5d2-42ea-46ca-b832-e684c92ce6cf

If it is difficult to determine the probability of continued operation, obtain documentation on the viability and potential future earnings, and an explanation of the function and financial operations of the business from a qualified party. Continued on next page 4-10 VA Lenders Handbook M26-7 Chapter 4: Credit Underwriting Topic 2: Income – Required Documentation and Analysis, continued j.

VA_Guidelines.txt

3302dfbe-b675-4cb7-8785-e03ab00fd740

Self-Employment Income Analysis Guidelines, continued Deductions and Expenses Claimed on Tax Returns Depreciation claimed as a deduction on the tax returns and financial statements of the business may be included in effective income. Business or roll over losses must be considered from all tax returns.

VA_Guidelines.txt

7f5e0441-7dee-4ee1-9e3b-1fb3994d95c2

What is reported to the IRS on a joint return must be used when applying for a federally guaranteed loan. On a joint tax return, the loss must be deducted from the borrower’s income in both community and non-community property states.

VA_Guidelines.txt

0e01870e-790c-4cfd-984b-c2ed1effaf1f

On a joint tax return, when a borrower and co-borrower have been faced with business losses, the Veteran/borrower and his/her spouse may want to consider both being on the loan in order to potentially qualify. The credit of both borrowers will be considered. k. Active Military Borrower’s Income For active-duty military borrowers, a Leave and Earnings Statement (LES) is required instead of a VOE.

VA_Guidelines.txt

89b20c13-822b-4370-8826-8aa1dac71da6

The LES must be an original, electronic, or a copy certified by the lender to be a true copy of the original. The LES must furnish the same information as a VOE and must be no more than 120 days old (180 days for new construction), from the date of closing. For loans closed automatically, the date of the LES must be within 120 days of the date the note is signed (180 days for new construction).

VA_Guidelines.txt

3aabd2f0-e07a-4ed7-847b-95846dde13c6

For prior approval loans, the date of the LES must be within 120 days of the date the application is received by VA (180 days for new construction). In addition, identify servicemembers who are within 12 months of release from active duty or the end of their contract term.

VA_Guidelines.txt

4aac719f-35b8-4fa5-a77b-ce9c3f28b538

For an enlisted servicemember, find the date of expiration (ETS) of the borrower’s current contract for active service on the LES. For National Guard or Reserve members, find the ETS of the borrower’s current contract on the LES. Also, if a National Guard or Reserve member is currently serving on active duty, also identify the expiration date of the current active-duty tour.

VA_Guidelines.txt

e225d9aa-7b9a-4fa0-8035-4035daea7b5d

If the date is within 12 months of the projected date that the loan will close, the loan package must also include one of the following items, or combinations of items, to be acceptable: · documentation that the servicemember has already re-enlisted or extended his/her period of active duty to a date beyond the 12-month period following the projected closing of the loan, or · documentation that

VA_Guidelines.txt

41ca1c3c-3c17-4271-b0e3-d5f42232fc15

closing of the loan, or · documentation that the servicemember has already re-enlisted or extended his/her period of active-duty service to a date beyond the 12-month period following the projected closing of the loan, or Continued on next page 4-11 VA Lenders Handbook M26-7 Chapter 4: Credit Underwriting Topic 2: Income – Required Documentation and Analysis, continued k

VA_Guidelines.txt

a42bf6c7-5a6c-4710-b0a5-156ca31c579d

.

VA_Guidelines.txt

0110b722-bc6b-4ebf-a0d6-455c96e508df

Active Military Borrower’s Income, continued · verification of a valid offer of local civilian employment and/or verification of military retirement income following the release from active-duty service, or · verification of a valid offer of local civilian employment and/or verification of military retirement income following the release from active-duty service, or · a statement from the

VA_Guidelines.txt

36886534-e16a-493c-97ae-5ebe565bd7e9

active-duty service, or · a statement from the servicemember that he/she intends to re-enlist or extend his/her period of active-duty service to a date beyond the 12- month period, plus (1) a statement from the servicemember’s commanding officer confirming that the servicemember is eligible to re-enlist or extend his/her active-duty service as indicated, and (2) the commanding officer has no

VA_Guidelines.txt

8f945b45-654e-42f1-bc4b-48ee2e1f2368

indicated, and (2) the commanding officer has no reason to believe that such re-enlistment or extension of active-duty service will not be granted, or · documentation of other unusual strong positive underwriting factors, such as a downpayment of at least 10 percent from the borrower’s own assets (not a gift), a minimum of 6 months PITI, in cash, after the downpayment from the borrower’s own

VA_Guidelines.txt

3f229028-0346-42bb-aee4-74ab6b282b23

after the downpayment from the borrower’s own assets (not a gift) or clear evidence of strong ties to the community coupled with a non- military spouse’s income so high that only minimal income from the active-duty servicemember is needed to qualify

VA_Guidelines.txt

366b330b-c233-401c-88bb-265de6248d91

.

VA_Guidelines.txt

2fb0d0f5-0cdc-4e9c-aa3b-9ce8a800b7e3

If an Officer has an ETS date listed as 888888 or 000000 on his or her LES, the above documentation is not required unless there is evidence that the Officer has resigned his or her commission. Example: An Active Duty Veteran’s LES indicates her ETS date listed on her LES is 171031 (October 31, 2017) and the projected date of closing is October 1, 2017.

VA_Guidelines.txt

d456c52f-7ca6-4d58-9145-74ef5a990144

Therefore, one of the above items is needed to verify future income since her ETS date is less than 12 months from the projected date of closing. Example: A member of the Reserves has been called to Active Duty. The ETS date on his LES indicates 181031 (October 31, 2018); however, his active duty orders indicate his active duty tour will not exceed the next 60 days.

VA_Guidelines.txt

ef91ba88-126d-46ec-a16c-4737841fcaf7

Therefore, since he will be leaving active duty before 12 months of the projected closing date, the active-duty income cannot be considered, and his civilian employment and drill duty will need to be considered.

VA_Guidelines.txt

59056e7a-4845-45d9-9986-25db5a1adaf0

Example: An Active Duty Veteran’s LES indicates his ETS date is less than 1 month from the anticipated date of closing, and he indicates he will be receiving military retirement and has accepted civilian employment. Verify his future retirement income from the Department of Defense and verify future civilian employment with the Veteran’s new employer.

VA_Guidelines.txt

120b96ff-dfd6-4df2-99dc-7088c94aa07b

Analysis of Base Pay Consider the borrower’s base pay as stable and reliable unless the borrower is within 12 months of release from active-duty service. Analyze the additional documentation submitted.

VA_Guidelines.txt

6b3ed1df-2b35-408c-839f-d4c01bd816fc

Analyze the additional documentation submitted. If the borrower will not be re-enlisting, determine whether the borrower’s anticipated source of income is stable and reliable, and/or unusually strong underwriting factors compensate for any unknowns regarding future sources of income.

VA_Guidelines.txt

0e9afbd2-47b8-4080-ba90-581d0e313840

Continued on next page 4-12 VA Lenders Handbook M26-7 Chapter 4: Credit Underwriting Topic 2: Income – Required Documentation and Analysis, continued k. Active Military Borrower’s Income, continued If an Officer has an ETS date listed as 888888 or 000000 on his or her LES, the above documentation is not required unless there is evidence that the Officer has resigned his or her commission.

VA_Guidelines.txt

86b71745-19f3-495b-9447-749aff9691b4

Analysis of Military Quarters Allowance/ Basic Allowance for Housing (BAH) 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. The lender must verify the amount of BAH the Veteran will receive.

VA_Guidelines.txt

55759ae3-1305-47a4-96a0-62130bde768a

The BAH amount will change from one duty station to another. Ensure that the borrower meets the occupancy requirements set forth in Chapter 3 of this handbook. Verification and Analysis of Basic Allowance for Subsistence (BAS) and Clothing Allowances Any subsistence (rations) and clothing allowances are indicated on the LES. The lender may include verified allowances in effective income.

VA_Guidelines.txt

3810239c-4ba7-4054-9a45-1ac79bf362c0

These allowances are not taxable income. The clothing allowance generally appears on the LES as an annual amount. Convert the annual amount to a monthly amount for the Loan Analysis.

VA_Guidelines.txt

0b9aee52-7bb8-431b-8d29-8ecf0b9d2ea4

Verification and Analysis of Other Military Allowances To consider a military allowance in the underwriting analysis, obtain verification of the type and amount of the military allowance, how long the borrower has received it and the continuance into the foreseeable future.

VA_Guidelines.txt

ccf40226-a4d6-4396-9535-56264a52e199

Military allowances may be included in effective income only if such income can be expected to continue because of the nature of the borrower’s assigned duties.

VA_Guidelines.txt

babd194b-e375-4dd0-a11c-033668ac17e3

Such allowances include, but are not limited to: · proficiency pay, such as linguistic, parachute, scuba, flight or hazard pay, and · overseas or combat pay (sea pay, submarine, etc.) All types of allowances above are subject to periodic review and/or testing of the recipient to ascertain whether eligibility for such pay will continue.

VA_Guidelines.txt

0a0c87fe-c55c-4584-8f28-8937a6897619

Only if it can be shown that such pay has continued for a prolonged period and can be expected to continue because of the nature of the recipient's assigned duties, should the income be added to base pay. Contact the borrower’s chain of command if there are questions regarding the continuance of the income.

VA_Guidelines.txt

5f181909-0d15-4a81-83dd-dcf9abbbd65b

If the duration of the military allowance cannot be determined, this source of income may still be used to offset short term obligations of 6 to 24 months duration. Consult the IRS to determine if any allowances for pay are considered taxable income by the IRS, unlike housing, clothing, and subsistence allowances.

VA_Guidelines.txt

c55bd743-f106-4d2d-a58f-806ca8c46f45

Continued on next page 4-13 VA Lenders Handbook M26-7 Chapter 4: Credit Underwriting Topic 2: Income – Required Documentation and Analysis, continued l.

VA_Guidelines.txt

8b2f996d-84fc-4fb4-964b-03328531da7c

Income and Analysis of Income from Service in the Reserves or National Guard Income derived from service in the Reserves or National Guard may be used if the borrower has served in such capacity for a period of time sufficient to indicate a good probability that such income will continue beyond 12 months. The total period of active-duty and reserve service may be helpful in this regard.

VA_Guidelines.txt

c6aa4a90-e31b-4222-b0f9-912bbd5131d2

Otherwise, this income may be used to offset obligations of 6 to 24 months duration. Income from Recently Activated Members of the Reserve or National Guard Lenders must consider if a borrower, whose income is being used to qualify for a loan, may have a change in income due to participation in a Reserves/National Guard unit subject to activation.

VA_Guidelines.txt

08185892-92e0-4937-9e3e-e36befca7551

If an activated Reserves/National Guard member applies for a loan, they must present orders indicating their current active duty tour is not to exceed 12 months. Example: The borrower’s full-time civilian employment is $3,000 per month. The borrower’s current income from the Reserves due to activation is $3,500 per month and orders are for 12 months.

VA_Guidelines.txt

083b20a3-64da-4069-9c02-6a130872130e

Since the borrower’s full-time civilian employment is only $3,000 per month, the $3,000 should be used to qualify the borrower. There are not any clear-cut procedures that can be applied to all cases.

VA_Guidelines.txt

719878d9-7c48-4afe-ad90-3c8faf2c5566

Evaluate all aspects of each individual case, including credit history, accumulation of assets, overall employment history, and make the best decision for each loan regarding the use of income in qualifying for the loan. It is very important that loan files be carefully and thoroughly documented, including any reasons for using or not using Reserve/National Guard income in these situations.

VA_Guidelines.txt

0dc0206a-e20d-4178-872c-66c1335e62d6

As a lender, the goal is to provide the Veteran their benefit without placing him/her in a financial hardship. m. Verification and Analysis of Income of Recently Discharged Veterans or Veterans to be Discharged from the Military See the Income from Non-Military Employment in Topic 2, subsection e of this chapter for verification requirements.

VA_Guidelines.txt

83ab1082-c3f4-444b-bea9-b078ac13c564

Obtain verification that any of the following income types apply: · employment income, · retirement income, and/or · VA disability income. VA disability income is considered a benefit and does not need to be documented for the likelihood of continuance.

VA_Guidelines.txt

ee6f68e4-591e-44b9-a7dd-b2e990a385ae

Continued on next page 4-14 VA Lenders Handbook M26-7 Chapter 4: Credit Underwriting Topic 2: Income – Required Documentation and Analysis, continued m. Verification and Analysis of Income of Recently Discharged Veterans or Veterans to be Discharged from the Military, continued VA disability income verification will be placed on the COE.

VA_Guidelines.txt

8b2616ec-4523-4448-965a-12937058f907

However, there are some instances where this income is not placed on the COE which may include if the Veteran: · will be discharging within the next 6 months from the military and has completed a Physical Exam Board (PEB) or Medical Review Board (MEB) and will be filing for VA disability while still on active duty, · has recently filed for VA disability and VA’s Compensation Service has not yet

VA_Guidelines.txt

6a7e564c-a721-4ce9-9128-07484a74b7dc

and VA’s Compensation Service has not yet made a determination and would be entitled to receive VA disability benefits, · would be entitled to receive VA disability benefits, but for the receipt of retired pay, · has received VA disability benefits in the past, or · is an unmarried surviving spouse of a Veteran who is eligible for or receiving qualifying Disability and Indemnity Compensation

VA_Guidelines.txt

0db314ec-ba02-44cb-9b9e-4b8433015f11

qualifying Disability and Indemnity Compensation (DIC), or · is in receipt of a VA nonservice connected pension, or · has a VA-appointed Fiduciary to handle financial matters

VA_Guidelines.txt

ac733c40-3414-482f-8fa1-7249ffc5170d

.

VA_Guidelines.txt

aa670dd0-5f93-4d53-984c-f6798f7ced41

If the Veteran falls under one of the above categories, perform the following: · Submit by fax VA Form 26-8937, Verification of VA Benefits, to the VA Regional Loan Center (RLC) where the subject property is located.

VA_Guidelines.txt

bfcf51ec-5c40-43a0-8cb7-6ef4228362fa

VA will complete and return the form to the lender by return fax. · Provide any supporting documents, including the COE, if it states to send VA Form 26- 8937, Verification of Benefits to VA, to verify a Veteran’s monthly income from VA.

VA_Guidelines.txt

6fa2c72b-4cbe-40d4-ab4b-771c1fdafd7a

Please note that if VA’s Compensation Service has not yet issued a memo rating and/or completed a claim for a Veteran, then the amount the Veteran may receive in the future cannot be determined until the claim has been completed. Until the Veteran begins receiving the monthly award, the amount cannot be placed on the COE.

VA_Guidelines.txt

a66d269d-e453-47b7-9f12-4a51bfcaa6da

A VA awards letter can be used to verify the amount and date a future monthly VA compensation award will begin. However, the COE may be updated to reflect if the Veteran is exempt from paying the VA funding fee on a future disability award. See Chapter 8 of this handbook for funding fee exemptions.

VA_Guidelines.txt

654a8cfb-743d-4d33-9fc6-6f45925298c2

The loan cannot be submitted for prior approval, or approved under the automatic procedure, until the lender obtains the completed form from VA when the Veteran or surviving spouse is under one of the above categories in subsection m of this topic. The lender must maintain the completed form with the loan package.

VA_Guidelines.txt

9e476412-a059-4338-82e8-8c49bfa83526

If the form indicates that the borrower receives a non service-connected pension or has a VA Fiduciary, the loan cannot be closed automatically. The loan must be uploaded in WebLGY for prior approval. See Chapter 5 of this handbook for the necessary documentation that must be submitted to VA. VA must review, underwrite, and issue a Certificate of Commitment before the loan can close.

VA_Guidelines.txt

349ef62f-ca1d-4674-b4ae-f87f1b98dab3

See Chapter 5 of this handbook for prior approval procedures. Continued on next page 4-15 VA Lenders Handbook M26-7 Chapter 4: Credit Underwriting Topic 2: Income – Required Documentation and Analysis, continued m.

VA_Guidelines.txt

501a2b52-2101-4da9-87e5-d074628fc473

Verification and Analysis of Income of Recently Discharged Veterans or Veterans to be Discharged from the Military, continued VA’s Pension Service may also have to review and/or approve the application in addition to Loan Production. The VA RLC will coordinate with the Pension Service upon receipt of the underwriting package.

VA_Guidelines.txt

53ac24ee-e001-4197-ab86-ed76a8f35e9b

Allow for additional processing time of a prior approval loan application when Compensation and/or Pension Service must also review. Analysis of Prospects for Continued Employment Cases involving recently discharged Veterans often require the underwriter to exercise a great deal of judgment and flexibility in determining whether the employment income will continue in the foreseeable future.

VA_Guidelines.txt

24e6985a-0ad1-4f1a-9261-f2d9d463d8c2

This is because some Veterans may have little or no employment experience other than their military occupation. Continuity of employment is essential for a Veteran with no retirement income, or insufficient retirement income, to support the loan obligation.

VA_Guidelines.txt

00dbd761-ff55-4494-ae3f-6576f2ef73c8

If the duties the borrower performed in the military are similar or directly related to the duties of the present position, use this as one indicator that the employment is likely to continue. Most cases fall somewhere between these extremes. Fully develop the facts of each case to make a determination.

VA_Guidelines.txt

08a968c3-2ebe-426c-b3f3-8cdf034d9f88

The guidelines under Self-Employment Income in Topic 2, subsection j of this chapter provide guidance for a recently discharged Veteran who is self-employed. n. Rental Income When all or a portion of the borrower’s income is derived from rental income, documentation and verification of the income are necessary to determine the likelihood of continuance.

VA_Guidelines.txt

76910410-5bd9-452e-b721-dad464ecdc3a

Verification of Rental Offset of the Property Occupied Prior to the New Home Obtain a copy of the rental agreement for the property, if any. Analysis using Rental Offset of the Property Occupied Prior to the New Loan Use the prospective rental income only to offset the mortgage payment on the rental property, and only if there is not an indication that the property will be difficult to rent.

VA_Guidelines.txt

fc2a005a-e7dc-4627-a1bf-0b07c7668d50

This rental income may not be included in effective income. Obtain a working knowledge of the local rental market. If there is not a lease on the property, but the local rental market is very strong, the lender may still consider the prospective rental income for offset purposes. Provide a justification on VA Form 26-6393, Loan Analysis.

VA_Guidelines.txt

80cdbd72-a591-46ba-808b-f475b527e322

Reserves are not needed to offset the mortgage payment on the property the Veteran occupies prior to the new loan. Continued on next page 4-16 VA Lenders Handbook M26-7 Chapter 4: Credit Underwriting Topic 2: Income – Required Documentation and Analysis, continued n.

VA_Guidelines.txt

ceb722ea-3087-412b-ac01-6b910568e599

Rental Income, continued Example [Rental Offset of the Property Occupied Prior to the New Loan]: The Veteran’s current home has a VA mortgage with a monthly PITI payment of $1,000. Bonus entitlement is being used to purchase a new primary residence and the Veteran will rent the previous home for $1,200 monthly upon closing of the new home.

VA_Guidelines.txt

c4c65a56-4dec-4986-a3a1-8b5c873c77d4

The payment of $1,200 can be used to offset the existing mortgage payment, if all the above conditions are met. The additional rent received in excess of the mortgage payment cannot be used as effective income.

VA_Guidelines.txt

5d11b425-6331-43e0-8bf8-0ca64236d339

Verification of Rental Property Income Obtain the following: · documentation of cash reserves totaling at least 3 months mortgage payments (PITI), and · individual income tax returns, signed and dated or lender obtained tax transcripts, plus all applicable schedules for the previous 2 years, which show rental income generated by the property.

VA_Guidelines.txt

b23c049c-90b1-458c-afa7-29cb197529c3

If the borrower has multiple properties, the borrower must have 3 months PITI documented for each property to consider the rental income. If there is not a lien on the property, 3 months reserves to cover expenses such as taxes, hazard insurance, flood insurance, homeowner’s association fees, and any other recurring fees should be documented for the property(ies).

VA_Guidelines.txt

439c074c-8b05-4710-91cc-bf18ee6028a6

Equity in the property cannot be used as reserves. Cash proceeds from a VA refinance cannot be counted as the required PITI on a rental property. The reserve funds must be in the borrower’s account before the new VA loan closes. Gift funds cannot be used to meet reserve requirements.

VA_Guidelines.txt

d5dda654-a69a-4442-a8e5-3a8bf9561b74

Analysis of Rental Property Income Each property(ies) must have a 2-year rental history itemized on the borrower’s tax return. Property depreciation claimed as a deduction on the tax returns may be included in effective income.

VA_Guidelines.txt

35073d24-23b1-4a31-b3d3-af73ffcbf3cc

If after adding depreciation to the negative rental income, the borrower still has rental loss, the negative income should be deducted from the overall income as it reduces the borrower’s income. If rental income will not, or cannot be used, then the full mortgage payment should be considered and reserves do not need to be considered.

VA_Guidelines.txt

065ed00a-ec4f-4746-a660-04d3a9686ca0

Continued on next page 4-17 VA Lenders Handbook M26-7 Chapter 4: Credit Underwriting Topic 2: Income – Required Documentation and Analysis, continued n. Rental Income, continued Verification of Multi-Unit Property Securing the VA loan The Veteran/borrower must occupy one unit as his/her residence.

VA_Guidelines.txt

2d722c14-d9d6-4a89-b6bf-cfc0485f4028

For purposes of determining the VA guaranty, lenders are instructed to reference only the One-Unit Limit column in the FHFA Table “Fannie Mae and Freddie Mac Maximum Loan Limits for Mortgages, located at https://www.fhfa.gov/DataTools/Downloads.

VA_Guidelines.txt

55f832c5-7ec5-4d2b-a230-bc3997128f74

Verify cash reserves totaling at least 6 months mortgage payments (PITI), and documentation of the borrower’s prior experience managing rental units and/or use of a property management company to oversee the property.

VA_Guidelines.txt

c67514fe-29fd-48e6-90de-7bb6566337f3

Analysis of Multi-Unit Property Securing the VA loan (Veteran will occupy one unit as his/her residence) Include the prospective rental income in effective income only if: · the borrower has a reasonable likelihood of success as a landlord, and · cash reserves totaling at least 6 months mortgage payments (PITI).

VA_Guidelines.txt

a06b2a07-9139-4ca9-bde3-97fe500f7adf

If each unit is separate and not under one mortgage, 6 months PITI must be verified for each separate unit. Equity in the property cannot be used as reserves to meet PITI requirements. This must be the borrower’s own funds, not a gift. Cash proceeds from a VA regular “Cash-Out” refinance cannot be counted as the required PITI on a rental property.

VA_Guidelines.txt

3b0f93db-e394-4c62-8ce3-f4e717b4a232

The reserve funds must be in the borrower’s account before the new VA loan closes. The amount of rental income to include in effective income is based on 75 percent of the amount indicated on the lease or rental agreement unless a greater percentage can be documented (existing property).

VA_Guidelines.txt

0b6fb37b-655f-4b0c-b0ba-a68921612bb9

The amount of rental income to include in effective income is based on 75 percent of the amount indicated on the appraiser’s opinion of the property’s fair monthly rental (proposed construction). Continued on next page 4-18 VA Lenders Handbook M26-7 Chapter 4: Credit Underwriting Topic 2: Income – Required Documentation and Analysis, continued o.

VA_Guidelines.txt

15b8418a-5517-44a9-af67-d919b074449a

Temporary Boarder Rental Income Single Family Residence The verification of temporary boarder rental income requires the following: · individual income tax returns, signed and dated, plus all applicable schedules for the previous 2 years, which show boarder income generated by the property, and · the rental cannot impair the residential character of the property and cannot exceed 25 percent of

VA_Guidelines.txt

c459ac99-454f-4fd0-9758-102dab805c32

of the property and cannot exceed 25 percent of the total floor area

VA_Guidelines.txt

249e5b15-88f4-41de-bd46-9726ca5937c6

.

VA_Guidelines.txt

064790ab-9144-4b9c-b545-22b6ac62bc22

Analysis of Temporary Boarder Rental Income Include rental income in effective income only if the borrower has a reasonable likelihood of continued success due to the strength of the local market. Provide a justification on VA Form 26-6393, Loan Analysis. PITI reserves are not necessary to consider the income, and all the income may be used in the analysis. p.

VA_Guidelines.txt

1b11f5d4-981a-43b5-94f2-fba08dd73a78

Alimony, Child Support, and Maintenance Payments Verify the income if the borrower wants it to be considered. The payments must be likely to continue for at least 3 years from the anticipated closing date to include them in effective income.

VA_Guidelines.txt

a8527085-61eb-4bf2-9802-d3ce210ec94c

Factors used to determine whether the payments will continue include, but are not limited to: · whether the payments are received pursuant to a written agreement or court decree, · the length of time the payments have been received, · the regularity of receipt, and · the availability of procedures to compel payment. See “ECOA Considerations” in Topic 2, subsection d of this chapter. q.

VA_Guidelines.txt

71e3ba7b-9fca-4784-9ba6-8f33e19f448b

Automobile or Similar Allowances Generally, automobile allowances are paid to cover specific expenses related to a borrower’s employment, and it is appropriate to use such income to offset a corresponding car payment.

VA_Guidelines.txt

6196c646-8b5c-43ae-b8be-3bf0aff19097

However, if the borrower reports an allowance as part of monthly qualifying income, it must be determined if the automobile expense reported on IRS Form 2106 should be deducted from income or treated as a liability. If the reported expense is less than the automobile allowance, the amount can be treated as income and added to borrower’s monthly income.

VA_Guidelines.txt

6d4623bb-acb5-4975-8dd3-0f19bae9945b

If the reported expense exceeds the automobile allowance, the amount must be deducted from income as a net calculation in Section D on VA Form 26-6393, Loan Analysis. Likewise, any other similar type of allowance received by the borrower should be considered with regards to the tax returns for determination of an offset of the corresponding obligation, as income, or as an expense.

VA_Guidelines.txt

078cec8b-8ebf-4e24-8f0f-3f788eb0bddf

Continued on next page 4-19 VA Lenders Handbook M26-7 Chapter 4: Credit Underwriting Topic 2: Income – Required Documentation and Analysis, continued r.

VA_Guidelines.txt

a434b99e-60a9-45c1-86cf-6ae4215e17f4

Other Types of Income While not all types of income can be listed, documentation of income must support the history of receipt and the likelihood or continuance of the income for at least 3 years from the anticipated closing date to include in effective income.

VA_Guidelines.txt

bc1d810c-f14d-4675-b493-c5c3293d11e0

Otherwise, consider whether it is reasonable to use the income to offsets short term obligations of 6 to 24 months duration

VA_Guidelines.txt

3d8a4e11-9bcf-444a-b0c4-d0ce393d8930

. “Other” types of income which may be considered as effective income include, but are not limited to: · pension or other retirement benefits, · disability income, · dividends from stocks or other, · interest from bonds, savings accounts, or others, · royalties, · notes receivable, and · trusts VA disability income is considered a benefit and does not need to be documented for the likelihood of

VA_Guidelines.txt

cfa1283a-5b25-416b-b64b-159586c05b06

not need to be documented for the likelihood of continuance

VA_Guidelines.txt

a7a22a5d-d918-4c78-b597-d250d546046b

.

VA_Guidelines.txt

be51c8d2-41f7-4fda-9647-190ccebd0697

A COE will generally have the amount of VA disability income listed, however, see Topic 2, subsection m of this chapter for exceptions. A VA award letter or bank statement may also verify the current monthly amount received. The lender may include verified income from public assistance programs in effective income if evidence indicates it will likely continue for 3 years or more.

VA_Guidelines.txt

3a4ed534-c285-4ba2-b1bb-2b187a65e0d9

The lender may include workers’ compensation income that will continue for at least 3 years from the anticipated closing date if the borrower chooses to reveal it. The lender may include verified income received specifically for the care of any foster child(ren), only to balance the expenses of caring for the foster child(ren) against any increased residual requirements.

VA_Guidelines.txt

b298dcdf-0395-4565-ac2a-987de519c63a

Example: The borrower(s) receive a stipend paid by the county or State for two foster children living in the residence. Instead of considering a family size of four, a family size of two should be used to determine the residual income requirement.

VA_Guidelines.txt

30500ad9-1a63-44a7-b4ee-a9d4a4710ab4

Do not include temporary income items such as VA educational allowances (including the Post 9/11 GI Bill benefit) and unemployment compensation in effective income. Exception: If unemployment compensation is a regular part of a borrower’s income due to the nature of his/her employment (for example, seasonal work), it may be included.

VA_Guidelines.txt

35305046-fe83-444e-b78c-1626e4f50634

Continued on next page 4-20 VA Lenders Handbook M26-7 Chapter 4: Credit Underwriting Topic 2: Income – Required Documentation and Analysis, continued r.

VA_Guidelines.txt