VA Loans and Verifiable Income: Disability Payments

Mortgage and Lending with Real -Time Dashboard FHA Mortgage Leads / Managing Editor

A reader asks, “Can VA disability payments be considered as income, also I’ve read somewhere that VA loans to disabled vets are different.”

VA loans for veterans with VA-recognized disabilities are different because the Department of Veterans Affairs allows these vets to apply for a waiver of the VA loan funding fee. This waiver is not automatic and the veteran borrower must have evidence that the VA recognizes his or her condition. Basically a veteran receiving, or eligible to receive VA compensation for a service-related medical condition is eligible to apply for the waived funding fee.

On disability payments as verifiable income: while the VA doesn’t have a specific section of the rulebook for VA disability compensation payments, it does include “disability payments” in a list of items considered “Other Income” used for the purposes of calculating a borrower’s verifiable income. The VA Lender’s Handbook states, “If it is reasonable to conclude that other types of income will continue in the foreseeable future, include it in effective income.  Otherwise, consider whether it is reasonable to use the income to offset obligations of 10 to 24 months duration.”

The fact that VA disability pay is “likely to continue” once it has begun is the key–such payments are normally made on a monthly basis for life, once the VA has recognized and agreed to compensate a veteran for a service-related condition. From the VA Lender’s Handbook Chapter Four, Section Two, we learn that disability pay, pensions and other retirement benefits are considered “effective income”. Here is the complete list as printed in the handbook:

  • pension or other retirement benefits,
  • disability income,
  • dividends from stocks,
  • interest from bonds, savings accounts, and so on, and
  • royalties.

The VA also adds, “The lender may include verified income from public assistance programs in effective income if evidence indicates it will probably continue for 3 years or more. The lender may include verified workers’ compensation income that will continue in the foreseeable future, if the veteran chooses to reveal it.”

There’s also a provision for money received for providing certain types of child care:

“The lender may include verified income received specifically for the care of any foster child(ren).  Generally, foster care income is to be used only to balance the expenses of caring for the foster child(ren) against any increased residual income requirements.”

It’s important to point out that one type of military benefit–the GI Bill–is not used to calculate effective income for the purposes of approving a VA home loan. According to the VA, “Do not include temporary income items such as VA educational allowances and unemployment compensation in effective income.” This is most likely due to the fact that GI Bill income is only available for a limited number of months while the benefits are being used.

On the subject of unemployment, the VA adds an exception: “If unemployment compensation is a regular part of the applicant’s income due to the nature of his or her employment (for example, seasonal work), it may be included.”

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Edward & Celia Maddox
The Celtic Connection Realty - Queen Creek, AZ

Some good info on VA loans that I did not know before.  Thanks for sharing.

Jun 22, 2012 12:47 AM #1
Fisher fjj
Mar 28, 2013 09:55 PM #2
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