military income military income verification leave and earnings statement (les) instead of...

MILITARY

INCOME

MILITARY

INCOME

VerificationVerification

Leave and Earnings Statement (LES)

•Instead of Verification of Employment (VOE)

•Contains identifying information, rate of pay, date of entry, date of release, etc.

•Original or certified true copy

•Computer generated through “myPay” acceptable

Leave and Earnings Statement (LES)

•Instead of Verification of Employment (VOE)

•Contains identifying information, rate of pay, date of entry, date of release, etc.

•Original or certified true copy

•Computer generated through “myPay” acceptable

Important!Important!

Is the borrower within 12 months of separation?

•Check ETS “Expiration of Term of Service”

•Located on LES

•National Guard/Reserve member expiration on current contract

Income with less than 12 months remaining term cannot be considered stable and reliable.

Is the borrower within 12 months of separation?

•Check ETS “Expiration of Term of Service”

•Located on LES

•National Guard/Reserve member expiration on current contract

Income with less than 12 months remaining term cannot be considered stable and reliable.

Less than 12 months remaining?Less than 12 months remaining?

Document the loan package with one of the following four items:

Document the loan package with one of the following four items:

1. Evidence of re-enlistment or extension showing

•New ETS date more than 12 months from date of closing

1. Evidence of re-enlistment or extension showing

•New ETS date more than 12 months from date of closing

2. Verification of bona fide offer of civilian employment after release from active duty.

•Must include

•Start date

•Rate of pay

•Full time/part time?

2. Verification of bona fide offer of civilian employment after release from active duty.

•Must include

•Start date

•Rate of pay

•Full time/part time?

Less than 12 months remaining?Less than 12 months remaining?

3. Statement from borrower stating intent to reenlist, PLUS

Statement from commanding officer confirming

•Service member’s eligibility to reenlist and

•Belief that reenlistment request will be granted

3. Statement from borrower stating intent to reenlist, PLUS

Statement from commanding officer confirming

•Service member’s eligibility to reenlist and

•Belief that reenlistment request will be granted

Less than 12 months remaining?Less than 12 months remaining?

4. Documentation of unusually strong positive underwriting factors such as

•Down payment 10% or more,

•Large cash reserves, or

•Evidence of strong ties to community AND

•Nonmilitary spouse with high income

•Only minimal income needed from veteran to qualify

4. Documentation of unusually strong positive underwriting factors such as

•Down payment 10% or more,

•Large cash reserves, or

•Evidence of strong ties to community AND

•Nonmilitary spouse with high income

•Only minimal income needed from veteran to qualify

Less than 12 months remaining?Less than 12 months remaining?

Base PayBase PayConsidered stable and reliable if ETS is 12 months or more from date of closing.Considered stable and reliable if ETS is 12 months or more from date of closing.

Shown in “Entitlements” section of LES.

•Allowances shown here as well.

Shown in “Entitlements” section of LES.

•Allowances shown here as well.

Note: If the service member has an upcoming change in pay grade, duty station, deployment, etc., the new income will not be reflected on the LES. A “statement of service” may be obtained to show new base pay and/or allowance amounts that may be used in loan qualification.

Note: If the service member has an upcoming change in pay grade, duty station, deployment, etc., the new income will not be reflected on the LES. A “statement of service” may be obtained to show new base pay and/or allowance amounts that may be used in loan qualification.

Allowances*Allowances*

Basic Allowance for Housing (BAH)

•Based on location, grade and dependency status

Basic Allowance for Subsistence (BAS)

•Offsets cost of meals for service member

Clothing Allowance

•Lump sum paid once a year (if entitled)

•Convert to monthly amount for Loan Analysis

Basic Allowance for Housing (BAH)

•Based on location, grade and dependency status

Basic Allowance for Subsistence (BAS)

•Offsets cost of meals for service member

Clothing Allowance

•Lump sum paid once a year (if entitled)

•Convert to monthly amount for Loan Analysis

Common, usable incomeCommon, usable income

*Non-Taxable

Cost of Living Allowance (COLA)

Received by service members assigned to duty stations in high-cost locations.

•Taxable income*

•Usable if it will be received for at least 12 months

•Verify with orders

Received by service members assigned to duty stations in high-cost locations.

•Taxable income*

•Usable if it will be received for at least 12 months

•Verify with orders

*Alaska and Hawaii are considered “overseas” for military purposes. The COLA received in these states is not taxable.

Other AllowancesOther Allowances

•Based on special duties (i.e. Submarine Pay, Flight Pay, etc.)

•Based on deployment (i.e. Hazard Pay, Family Separation Allowance, etc.)

•Based on career status (i.e. Career Sea Pay, Career Flyer Pay, etc.)

•Based on special duties (i.e. Submarine Pay, Flight Pay, etc.)

•Based on deployment (i.e. Hazard Pay, Family Separation Allowance, etc.)

•Based on career status (i.e. Career Sea Pay, Career Flyer Pay, etc.)

Other AllowancesOther Allowances

Many “other allowances” are subject to periodic review and testing. Verify the duration of the allowance.

Many “other allowances” are subject to periodic review and testing. Verify the duration of the allowance.

If the term of the allowance cannot be determined, this source of income may still be used to offset debts of 10 to 24 months’ duration.

If the term of the allowance cannot be determined, this source of income may still be used to offset debts of 10 to 24 months’ duration.

Grossing up?Grossing up?

Non-taxable allowances may be grossed up.

•For calculating debt-to-income ratio only.

•Do not use in residual income calculation.

•Use industry standard for gross up percentage.

Reduced Residual Guideline*Reduced Residual Guideline*

Residual income guideline may be reduced by 5%

•Due to having access to military-based facilities

•Commissary (groceries, sundry items, etc.)

•Exchange (military department and drug store)

•MRW (recreational facilities, youth activities, etc.)

*Residual Income Tables located in Chapter 4, section 9e of VA Lender’s Handbook.

Reservist & National Guard Income

Reservist & National Guard Income

Drill pay may be used as effective income

•If length of total service indicates strong possibility that this income will continue.

•Otherwise, this income may be used to offset obligations of 10 – 24 months’ duration.

Drill pay may be used as effective income

•If length of total service indicates strong possibility that this income will continue.

•Otherwise, this income may be used to offset obligations of 10 – 24 months’ duration.

National Guard/Reservist “Activation Statement”

National Guard/Reservist “Activation Statement”

Is borrower a

National Guard

or Reserve member?

Is borrower a

National Guard

or Reserve member?

Have they received orders

for mobilization?

Have they received orders

for mobilization?

You need to know!You need to know!

•Obtain certification for all borrowers using their income to qualify.

•Including spouse

•Not required for active duty borrowers

•Make part of origination package. (See samples)

National Guard/Reservist “Activation Statement”

National Guard/Reservist “Activation Statement”

Underwriting ConsiderationsUnderwriting Considerations

Income may change significantly upon activation.

•Reduced income may prevent the borrower from qualifying.

•Increased income may not continue beyond a 12-month period.

If activation status changes at any time between loan application and loan closing, underwriter must re-evaluate income used for qualification.

ReferencesReferencesVA Lender’s Handbook

Chapter 4, sections k - m

Military.com

Military Pay and Allowances Pages

Questions?Questions?With base pay and 70 types of special pays and allowances, qualification questions may arise.

Please do not hesitate to call or e-mail your nearest VA Regional Loan Center for assistance.

With base pay and 70 types of special pays and allowances, qualification questions may arise.

Please do not hesitate to call or e-mail your nearest VA Regional Loan Center for assistance.

We would be happy to help!We would be happy to help!

Thank you for your interest in the VA Home Loan Program!

Thank you for your interest in the VA Home Loan Program!

We appreciate your support!We appreciate your support!