MILITARY

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MILITARY INCOME
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Verification

• Leave and Earnings Statement (LES)
• Instead of Verification of Employment (VOE)
• Contains identifying information, rate of pay,
  date of entry, date of release, etc.
• Original or certified true copy
• Computer generated through myPay acceptable

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Important!

• Is the borrower within 12 months of separation?
• Check ETS Expiration of Term of Service
• Located on LES
• National Guard/Reserve member expiration on
  current contract
• Income with less than 12 months remaining term
  cannot be considered stable and reliable.

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Less than 12 months remaining?
Document the loan package with one of the
following four items

• 1. Evidence of re-enlistment or extension
  showing
• New ETS date more than 12 months from date of
  closing

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Less than 12 months remaining?

• 2. Verification of bona fide offer of civilian
  employment after release from active duty.
• Must include
• Start date
• Rate of pay
• Full time/part time?

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Less than 12 months remaining?

• 3. Statement from borrower stating intent to
  reenlist, PLUS
• Statement from commanding officer confirming
• Service members eligibility to reenlist and
• Belief that reenlistment request will be granted

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Less than 12 months remaining?

• 4. Documentation of unusually strong positive
  underwriting factors such as
• Down payment 10 or more,
• Large cash reserves, or
• Evidence of strong ties to community AND
• Nonmilitary spouse with high income
• Only minimal income needed from veteran to qualify

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Base Pay
Considered stable and reliable if ETS is 12
months or more from date of closing.

• Shown in Entitlements section of LES.
• Allowances shown here as well.

Note If the service member has an upcoming
change in pay grade, duty station, deployment,
etc., the new income will not be reflected on the
LES. A statement of service may be obtained to
show new base pay and/or allowance amounts that
may be used in loan qualification.
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Allowances
Common, usable income

• Basic Allowance for Housing (BAH)
• Based on location, grade and dependency status
• Basic Allowance for Subsistence (BAS)
• Offsets cost of meals for service member
• Clothing Allowance
• Lump sum paid once a year (if entitled)
• Convert to monthly amount for Loan Analysis

Non-Taxable
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Cost of Living Allowance (COLA)

• Received by service members assigned to duty
  stations in high-cost locations.
• Taxable income
• Usable if it will be received for at least 12
  months
• Verify with orders

Alaska and Hawaii are considered overseas for
military purposes. The COLA received in these
states is not taxable.
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Other Allowances

• Based on special duties (i.e. Submarine Pay,
  Flight Pay, etc.)
• Based on deployment (i.e. Hazard Pay, Family
  Separation Allowance, etc.)
• Based on career status (i.e. Career Sea Pay,
  Career Flyer Pay, etc.)

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Other Allowances
Many other allowances are subject to periodic
review and testing. Verify the duration of the
allowance.
If the term of the allowance cannot be
determined, this source of income may still be
used to offset debts of 10 to 24 months duration.
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Grossing up?

• Non-taxable allowances may be grossed up.
• For calculating debt-to-income ratio only.
• Do not use in residual income calculation.
• Use industry standard for gross up percentage.

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Reduced Residual Guideline

• Residual income guideline may be reduced by 5
• Due to having access to military-based facilities
  
• Commissary (groceries, sundry items, etc.)
• Exchange (military department and drug store)
• MRW (recreational facilities, youth activities,
  etc.)

Residual Income Tables located in Chapter 4,
section 9e of VA Lenders Handbook.
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Reservist National Guard Income

• Drill pay may be used as effective income
• If length of total service indicates strong
  possibility that this income will continue.
• Otherwise, this income may be used to offset
  obligations of 10 24 months duration.

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National Guard/Reservist Activation Statement
Is borrower a National Guard or Reserve member?
Have they received orders for mobilization?
You need to know!
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National Guard/Reservist Activation Statement

• Obtain certification for all borrowers using
  their income to qualify.
• Including spouse
• Not required for active duty borrowers
• Make part of origination package. (See samples)

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Underwriting Considerations

• Income may change significantly upon activation.
• Reduced income may prevent the borrower from
  qualifying.
• Increased income may not continue beyond a
  12-month period.
• If activation status changes at any time between
  loan application and loan closing, underwriter
  must re-evaluate income used for qualification.

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References
VA Lenders Handbook Chapter 4, sections k - m
Military.com Military Pay and Allowances Pages
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Questions?
With base pay and 70 types of special pays and
allowances, qualification questions may
arise. Please do not hesitate to call or e-mail
your nearest VA Regional Loan Center for
assistance.
We would be happy to help!
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Thank you for your interest in the VA Home Loan
Program!
We appreciate your support!