As the end of their military service approaches, many service members and families want to buy a house. In addition to the reasons why that might not be a great idea, it can also be harder to get a mortgage in the year prior to leaving the military, or shortly after leaving the military. Here are some of the challenges and what you can do about them.
Verification of Employment
Any mortgage company is going to want to verify your employment. Loans guaranteed by the Department of Veterans Affairs specifically require that the lender verify that income be "verifiable, stable and reliable, and anticipated to continue for the foreseeable future." To this end, lenders are going to want to know when your service ends, or if you have intentions to retire within the next year.
If you're in a new job, you have a different challenge. New employment is not generally considered to be stable. There are a wide variety of exceptions, however, including a new job that is closely related to previous employment. A verified job offer may also be used if the lender can justify the circumstances.
Solutions to this problem include purchasing the property more than 12 months before leaving the military, purchasing within your budget calculated without using a new job, or waiting until you are settled in your new employment.
Counting Your Income
Closely related to verification of employment is the verification of income. If you are nearing or after separation or retirement, your active-duty military income will not be used to qualify you for a loan. What will be counted is non-military income that is anticipated to continue, military retirement pay, spousal income and any non-employment income such as income from a rental property.
Disability compensation received from the Department of Veterans Affairs is counted as income once you have a rating awards letter, even if the compensation has not yet started. As a bonus, VA disability income counts a little more because it is tax-free.
Post 9/11 GI Bill benefits are generally not counted in your income when qualifying for a mortgage, because they aren't consistent and they only last for 36 months.
Solutions to the income problem are the same as for the employment verification problem. Buy early, borrow less or wait.
Most primary home loans have some sort of occupancy requirement. VA loans, in particular, require that you intend to occupy the property in a reasonable amount of time. While that is generally considered to be 60 days, there is leeway with specific situations. This may include dependent occupancy, or a known event like a retirement date.
Ways to get around this rule include having the dependents move to the house ahead of the service member, delaying the purchase until you are able to occupy the house, or finding a lender who is willing to be flexible with the occupancy requirements.
Keep in mind that lenders can and do have different guidelines for underwriting their mortgages. Just because one lender says no doesn't mean that you can't find a lender that says yes. You may have to pay a little more with a more flexible lender. VA lenders have less room for flexibility, but still have some room to look at situations in different ways.
If you want to buy a house around the time you are leaving the military, you're going to have a few challenges. Being prepared and knowing solutions is the best way to solve those challenges.
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