VA Loan Income Verification and Special Military Pay

In our last blog post we discussed military pay and allowances, some of which are acceptable to the Department of Veterans Affairs to be included as verifiable income. Some military pay is either not available long enough to be counted or offered infrequently enough to be excluded from the VA loan applicant’s verifiable income.

But many of the areas where the military provides additional payment aren’t rejected automatically–or accepted without question. The lender must examine the pay, the circumstances under which it’s given, and make a determination based on the facts.

Here is a list of some military pay and allowances a VA loan applicant should submit for verification and how the lender may scrutinize it.

Military Housing Allowances

According to the VA Lender’s Handbook, “The lender may include a military quarters allowance in effective income if properly verified.” The borrower should include evidence of this allowance by furnishing a copy of a Leave and Earnings Statement that reflects the housing allowance is being paid and how much.

It’s a good idea to highlight that area since military pay stubs may be difficult for non-military people to decipher. An experienced loan officer who has processed VA loans before may not have trouble finding the right area, but a loan officer new to VA loans may find military-speak a bit hard to sort through at first.

Military Subsistence Pay

“Subsistence Pay” is a military phrase that basically means “food allowance”. Again, the lender verifies this allowance is being paid by examining the Leave and Earnings Statement.

Clothing Allowance

The military pays an annual clothing allowance to help offset the cost of purchasing uniform items including boots, dress uniforms, special equipment, etc. A newcomer to the VA loans program might assume a clothing allowance is one of the military pay categories not considered verifiable income since it is paid once per year.

But VA rules allow this annual allowance to be added–the lender takes the total amount, divides by 12 and uses that number to add into the military member’s monthly income total.

Hazardous Duty Pay and Similar Allowances

According to the VA lender’s handbook, “…to consider a military allowance in the underwriting analysis, obtain verification of the type and amount of the military allowance, and how long the applicant has received it. Examples include propay, flight or hazard pay, overseas pay, and combat pay. All of these are subject to periodic review and/or testing of the recipient to determine continued eligibility. Military allowances may be included in effective income only if such income can be expected to continue because of the nature of the recipient’s assigned duties.”