The rules for lenders approving VA loan applications includes a set of instructions for reviewing situations where a borrower has worked less than 12 months, and for VA loan applicants who seem to change jobs frequently.
There’s good news and bad news for VA loan applicants who face scrutiny of their job history in such circumstances. The good news is that the VA requires lenders to review these circumstances on a case-by-case basis–there are no hard-and-fast, line-in-the-sand type rules for all borrowers. Instead there are guidelines such as the ones below, reprinted from the VA Lender’s Handbook:
“Applicant Employed Less Than 12 Months: Generally, employment less than 12 months is not considered stable and reliable. However, it may be considered stable and reliable if the individual facts warrant such a conclusion. Carefully consider the employer’s evaluation of the probability of continued employment, if provided.”
In addition to this, the lender is required to “Assess whether the applicant’s training and/or education equipped him or her with particular skills that relate directly to the duties of his/her current position. This generally applies to skilled positions. Examples include nurse, medical technician, lawyer, paralegal, and computer systems analyst.”
VA loan rules say that if it is highly likely that employment will continue “based on these factors”, the lender is allowed to give “favorable consideration to including the income in the total effective income.” The lender must also include “an explanation of why income of less than 12 months duration was used must accompany the loan submission.” Borrowers may be required to furnish a written statement to the lender.
When it comes to borrowers who have a recent history of frequent job changes, the VA loan rules say “Short-term employment in a present position combined with frequent changes of employment in the recent past requires special consideration to determine stability of income. Analyze the reasons for the changes in employment.”
That may sound a bit ominous, but the VA rules further clarify, saying the lender should offer “favorable consideration to changes for the purpose of career advancement in the same or related field.” However, the VA also states, “Favorable consideration may not be possible for changes:
• with no apparent betterment to the applicant, and
• from one line of work to another.
If the lender includes applicant’s income in effective income, an explanation must accompany the loan submission.”
As previously mentioned, the good news is that the VA offers lenders some flexibility in these cases. The “bad news” is that the borrower may be required to furnish the burden of proof in writing that he or she is a good credit risk and explain any frequent job changes, lack of employment longer than 12 months or other causes for concern on the VA loan application. For borrowers who can do so, this isn’t really bad news, but it does require some extra effort on the VA loan applicant’s part.
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