As you get ready to apply for a mortgage using your VA loan benefits, it’s important to understand how your employment status and work history can influence your eligibility.
VA lenders look for mortgage borrowers to have a steady, reliable income to prove they are likely to repay their mortgage. Learn about the essential VA loan employment requirements below.
Highlights
- Steady employment or two years of work history is key for VA loan approval, but gaps or job changes may be acceptable.
- Proof of employment is required, with active duty members needing a Leave and Earnings Statement (LES).
- Veterans transitioning to civilian jobs can qualify with a job offer that aligns with their military experience.
- Employment gaps are accepted if adequately explained and supported.
What are the Employment History Requirements for VA Loans?
To qualify for a VA loan, a consistent work history is necessary to demonstrate job stability.
While two years is typically the minimum employment requirement for VA loans, it is not always the case. Generally, lenders allow for job changes, but they usually want to see that those jobs are related, either in the same or similar fields, and that your income has risen over time. If your income is stagnant or declining, this adds additional risk for your lender.
When it comes to gaps in your employment, while not ideal, they don’t automatically hurt your eligibility. As long as your employment gaps can be substantiated, do not exceed an aggregate of six months, and you can still show two years’ worth of employment history, your lender is likely to overlook the gaps.
VA Loan Debt-to-Income Requirements
Your debt-to-income (DTI) ratio is important when qualifying for a VA loan. Your DTI, which compares your major monthly debt payments to your gross income, indicates your ability to manage additional debt.
The VA does not establish a maximum debt-to-income ratio, but the VA recommends 41% or lower as acceptable. Lenders typically favor a lower DTI ratio, as it implies a stronger ability to meet financial commitments, including a mortgage.
Maximum debt ratio guidelines can differ depending on the lender, loan type, and other considerations. For veterans with higher DTI ratios, lenders might be open to making exceptions if there are compensating factors, like a strong credit score, a large down payment, or substantial cash reserves.
How to Provide Proof of Employment for VA Loans
During the underwriting process, your lender needs to verify your employment to ensure that your income is stable and reliable and that your employment status has not changed since applying for the loan.
Either in writing or verbally, the lender checks your employment history, role in the company, current income, and likelihood of continued employment.
In some cases, verbal verification of employment (VVOE) is adequate, especially if you have a consistent income stream. This is typically done via a phone call between the lender and your employer.
Job Correlation Letter
In other cases, your lender may require a written verification, sometimes called a job correlation letter. Lenders may request this document to demonstrate the relationship between an individual’s employment and their ability to qualify for a VA home loan.
This letter also provides evidence to the loan underwriter that you have stable income, job continuity, and likely continued employment.
It’s crucial to inform your lender if you anticipate a job change during the application process. This could delay your closing or even lead to a loan denial, so letting your lender know in advance can help prevent any potential issues.
Your income verification process is somewhat different if you’re an active duty servicemember. In this case, your lender requires a Leave and Earnings Statement (LES). This document contains the financial information necessary to verify your income.
Transitioning to a Civilian Job
VA home loans aren’t just for active duty servicemembers. Even if you are transitioning out of military service, you can still qualify for a VA mortgage.
Lenders usually require a job offer and documentation from your future employer that includes your job description, salary or pay structure, location, and other relevant details.
Consistency is key in these situations. Your lender evaluates your education, work history, and Military Occupational Specialty (MOS) to see if they match up with the civilian job. If they find a good correlation, you might be able to secure a VA loan even before starting your new job.
If you’ve switched jobs within the last two years, lenders carefully examine your employment history and how your current job and income align with your previous work, education, and training.
If lenders see sufficient continuity between your old and new positions, you may be able to proceed right away. If not, you may have to wait until you’ve been at your new job for 12 months before proceeding.
It’s not uncommon for veterans to transition to civilian life, undergo a career change, or receive disability income. As a result, there is some flexibility in the assessment process. Each applicant is evaluated individually on a case-by-case basis.
Addressing Employment Gaps
Employment gaps were often seen as a red flag in the past. However, since the pandemic, they have become more common and are no longer a major cause for concern.
There are many valid reasons for gaps in work history, such as being laid off, taking time to care for a sick family member, or raising children.
If you have a gap in your employment history, your lender assesses your overall situation to determine if your work history and financial standing indicate an ability to make your mortgage payments on time. Providing a well-crafted letter of explanation detailing the reason for any employment gaps can increase the likelihood of your loan being approved.
Generally, your lender wants to see documentation supporting a two-year work history, but you may still be approved without having two years on the job. Policies and employment requirements can differ by lender.
Recently Separated from Military
Whether you’re a veteran that’s recently transitioned out of the military, changed jobs since being out of the military, or even recently graduated from college, you may still qualify for a VA loan. In these situations, consistency once again plays a crucial role in the approval process.
Key factors that your lender will thoroughly assess include:
- Your educational background
- Your employment history
- Your training and/or education
Lenders assess your Military Occupational Specialty (MOS) to determine how well these items align with the requirements and responsibilities of the civilian job you’re transitioning into. This alignment between your military experience and your civilian career path demonstrates you have the stability and capability to manage the financial obligations associated with the loan.
If you can demonstrate enough continuity between your previous and current positions, you might be able to move forward immediately. However, if the connection isn’t strong enough, you may need to be in your new job for at least 12 months before you can be approved.
For active duty military personnel planning to purchase a home within 12 months of separating from the service, lenders require detailed information about your future income and employment plans.
They want to ensure that you have a stable financial future once your military service ends. This typically involves providing documentation of any job offers, expected salary, and other income sources to demonstrate that you will have the means to meet mortgage payments after your separation.
Lender guidelines vary, but by understanding your post-military financial situation, lenders can better assess your ability to handle the new mortgage.
Navigating VA Loan Requirements: Employment and Eligibility Insights
Don’t let gaps in your employment history deter you from applying for a VA loan. Employment gaps have become increasingly common and considered less of a concern.
Unlike earlier years when many people held the same job for decades, today people often change employers many times throughout their life. This is especially true within the civilian sector.
While your lender will require documentation that supports a two-year employment history, you may still qualify for a VA loan without two years on the job.
Your approval depends on your specific employment and income scenario, the VA lender, and other variables.
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