For veterans with disabilities seeking a VA loan, it’s common to ask about using VA disability pay to qualify for the loan. While you can count your VA disability as income, navigating lender requirements and the documentation you need can be a bit tricky.
The easiest way to know if your financial situation qualifies for a VA home loan is to get pre-qualified with a VA lender. In the meantime, here are some answers to frequent questions regarding VA home loans for 100% disabled veterans and veterans at all disability rating levels.
Do disabled veterans qualify for VA loans?
Yes, veterans with disabilities can qualify for VA loans. In fact, there are some unique VA mortgage benefits that only disabled veterans qualify for.
Veterans with disabilities can meet VA loan service requirements under several scenarios, including:
- You were discharged for a service-connected disability or,
- You met the minimum service requirements while still serving (typically, 90 days of continuous active duty).
This means that if your disability is not service-connected and you did not meet minimum service requirements while still in service, you are likely not eligible for a VA loan. But talk with a trusted lender to be sure.
You Still Have to Meet Lender Requirements
It is possible to obtain a VA home loan with disability pay as long as you ultimately meet lender requirements. The most important criteria lenders use to determine borrower eligibility are debt-to-income (DTI) ratio, residual income, income stability, and credit score.
DTI ratio helps lenders determine how much of a borrower’s monthly income is used to pay debts, while residual income helps them see how much a borrower will have left after major expenses and debts are paid. Lenders want to make sure you can comfortably manage your mortgage payment on top of your other bills.
Lenders also need to ensure that you have “stable and continuous” income. Short-term income streams, like the GI Bill, won’t qualify.
Can you qualify for a VA loan with just disability income?
Because it is considered stable and continuous income, VA disability is an acceptable form of income for a VA loan. But to qualify for a VA loan with disability alone, you must be able to afford your mortgage payments and satisfy residual income and other financial guidelines. Lender guidelines are entirely variable, which is why it’s important to shop around to make sure you’re getting a good deal.
If you have a lower disability rating, you may find it difficult or impossible to qualify for a mortgage with your disability income alone. For veterans with a higher or combined disability rating, getting qualified with just VA disability income may be much more feasible.
You can use our VA loan affordability calculator to get an idea of what your monthly payments might be.
What if You Have Bad Credit?
Getting a VA loan with bad credit can be tricky, but it isn’t impossible. The VA offers assistance programs for veterans who need to raise their credit score before they can purchase a home with a VA loan. Lenders may also offer credit education, so make sure to ask.
Also, you may need to adjust what you consider “bad credit.” Most VA lenders are looking for a minimum 620-640 credit score to qualify for a loan. It’s important to note that this 620 credit score standard can fluctuate up or down depending on market conditions and economic factors.
In addition, since the VA does not set a minimum credit score requirement, lenders are often willing to look at compensating factors such as a high residual income and a low debt-to-income ratio to approve your loan.
Benefits of VA Home Loans for Disabled Veterans
VA home loans offer numerous benefits, including no required down payment and competitive interest rates. To further support their homeownership journey, disabled veterans receive additional perks to ensure they have the resources needed to secure and maintain a home.
You Can Gross Up
The term “gross up” means to increase the actual income amount to reflect the fact that it is not taxed. Conveniently, since VA disability income is tax-free, veterans can “gross up” this income on their VA loan application. This makes it easier for veterans to meet VA lender income guidelines.
If you are a retired veteran who receives disability, you should know that VA disability affects military retirement pay and that you may not be able to gross up as much as you think. This is likely the case if you are eligible for the CRSC or CRDP program.
Closing Cost Exemption
The Department of Veterans Affairs charges veterans a funding fee to help offset the cost of the VA loan program. Veterans who receive compensation for a service-connected disability are typically exempt from paying the funding fee, meaning they can save thousands of dollars in closing costs.
You are exempt from the VA funding fee if:
- You receive compensation for a service-related disability
- You have a Purple Heart
- You are the surviving spouse of a veteran who passed away in service or from a service-related disability
This list of exemptions isn’t exhaustive. Talk with a lender to learn more.
Property Tax Exemptions
Numerous states across the country offer some level of veteran property tax exemptions. In addition, depending on your disability rating, you may qualify for even greater exemptions or credits.
The level of property tax exemption you receive will also depend on where you live in the country. For example, Texas provides property tax exemptions for all veterans. In Texas, the tax exemption is based on the length of military service, among other criteria.
On the other hand, California offers significant property tax exemptions specifically for disabled veterans, with those rated 100% disabled receiving a complete exemption from property taxes for a primary residence.
Check with your state’s Department of Veterans Affairs or local county assessor’s office to determine any property tax exemptions you can anticipate. Talk with a tax professional for further information.
VA loans for veterans rated “Incompetent”
With the help and guidance of a fiduciary, veterans who are rated “incompetent” can qualify for a VA loan and obtain housing that fits their unique needs.
Veterans who receive an incompetent rating by the Department of Veteran Affairs often suffer from a cognitive impairment. This can be due to a traumatic brain injury or even a condition such as advanced dementia. Therefore, these veterans are typically individuals who need to have a trusted representative, also known as a fiduciary, to handle their financial affairs on their behalf, such as paying bills or purchasing a home.
This representative could be a family member, legal guardian, or appointed advocate.
Getting a VA Loan with an Incompetent Rating
To get a VA loan for a veteran rated incompetent, you must obtain VA Form 26-8937, “Verification of VA Benefits.” You must also have this form and your VA loan Notice of Value (NOV) approved by your regional VA center. They will ensure that the loan is in the veteran’s best interest. After their approval, your loan can proceed.
You should also keep your lender in the loop to ensure your closing doesn’t get delayed. They should be able to help you navigate this process.
Remember that even if you meet the minimum service requirements to get a VA loan, you still need to meet a lender’s financial requirements.
More Reading
How to Get a VA Loan Certificate of Eligibility
VA Loan Appraisal and Inspection Requirements
VA Loan Eligible and Ineligible Properties
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