Self Employment and Veteran Home Loans, Exact Science or Judgement Call?

It does surprise me how much I have heard this topic yucked up around town. Yes, self employed vets can qualify for veteran home loans as long as certain guidelines are met. We’re going to cover the biggest guideline of them all – the 2 year rule.

First and foremost, directly from the VA Lender’s Handbook, VA Pamphlet 26-7 Revised, Chapter 4: Credit Underwriting, the VA states:

Income analysis is not an exact science. It requires the lender to underwrite each loan on a case-by-case basis, using: judgement, common sense and flexibility (when warranted)

With this said, if you are a vet or otherwise are eligible for a veteran home loan and are self employed then there are some requirements you need to know about if you plan to use your eligibility for a veteran home loan.

• Stable Income
• Uncertainties
• The Kicker

Stable Income

The most general guideline for being self employed and veteran home loans is that an applicant needs to show stable income. Stable income is typically shown by the income received over a two year period. I like to call this the 2 year employment rule. If you pay attention to mortgage loan requirements you’ll see other 2 year rules in play for other loan requirements. What I am talking about in this post is only relavant to veteran home loans and places.

It is because of the broad and misunderstood interpretation of what stable income means that many people say that if you haven’t been self employed for 2 years or more then you won’t qualify for a mortgage as a self employed individual.

Uncertainties

The VA stipulates that income from self employment is considered stable when the applicant has been in business for at least 2 years. But if we recall the earlier info from the VA Lenders Handbook from above that says that income analysis is not an exact science we get ourselves into the gray area about being self employed and qualifying for a veteran home loan.

The Kicker

The kicker to the steadfast rule about 2 years needed for self employment is that if you have been self employed for more than 1 year but less than 2 and you have previous related employment you may get an approval. You may also get an exception to the 2 year rule if you received extensive specialized training in your industry/profession.

The VA does state that self employment of less than one year rarely qualifies. They go on to suggest that more “in-depth development is required for a conclusion of stable income on less than 1 year cases.”

It’s Up To You

With both of these conditions in mind, and the idea that there is no exact science to analyzing income, it will be on you to prove to the VA loan underwriter why your income should be considered stable if you have been self employed for less than 2 years if and when you apply for a veteran home loan.