When a VA loan applicant who is still on active duty wants to apply for a VA mortgage, the lender requires a current copy of the borrower’s Military Leave And Earnings Statement or LES as proof of income. The LES must be no older than 120 days (except for new construction loans, which allow for 180 days) and must be an original or a lender-certified copy.
VA loan rules also allow the borrower to submit proof of income via the military online system MyPay.
But for some military members, this isn’t the only proof required. Borrowers who are within one year of the end of their current active duty service commitment must provide additional information. According to the VA Lender’s Handbook, the lender must, “identify servicemembers who are within 12 months of release from active duty or end of contract term. Find the date of expiration of the applicant’s current contract for active service on the LES (for an enlisted servicemember). For a National Guard or Reserve member, find the expiration date of the applicant’s current contract.”
VA loan rules say if the release date is within “12 months of the anticipated date that the loan will close, the loan package must also include one of the following four items, or combinations of items, to be acceptable:
• documentation that the servicemember has already re-enlisted or extended his/her period of active duty to a date beyond the 12-month period following the projected closing of the loan
or
• verification of a valid offer of local civilian employment following the release from active duty. All data pertinent to sound underwriting procedures (date employment will begin, earnings, and so on) must be included
or
• a statement from the servicemember that he/she intends to reenlist or extend his/her period of active duty to a date beyond the 12 month period, plus
• a statement from the servicemember’s commanding officer confirming that:
- the servicemember is eligible to reenlist or extend his/her active duty as indicated, and
- the commanding officer has no reason to believe that such reenlistment or extension of active duty will not be granted, or
• documentation of other unusually strong positive underwriting factors, such as:
- a downpayment of at least 10 percent,
- significant cash reserves, and
- clear evidence of strong ties to the community coupled with a nonmilitary spouse’s income so high that only minimal income from the active duty servicemember is needed to qualify.”
Finally, VA loan rules state the lender may consider a loan applicant’s military pay as “stable and reliable” if the borrower is not applying within a year of the end of the service commitment.
When it comes to re-enlistment, the lender may require proof that the borrower has legally committed to another term of service as mentioned above. If such documentation is not applicable, the lender must determine whether future income from non-military sources can be used to approve the loan application. VA loan rules instruct the lender, “If the applicant will not be reenlisting, determine whether:
- the applicant’s anticipated source of income is stable and reliable, and/or
- unusually strong underwriting factors compensate for any unknowns regarding future sources of income.”
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