October 30, 2013
Some veterans and currently serving military members may choose to pursue an FHA home loan instead of a VA mortgage for any number of reasons. If a borrower is eligible for VA benefits, can he or she count those benefits as income for the purposes of qualifying for an FHA insured mortgage loan?
According to the FHA loan rulebook, military pay and some benefits may be counted as verifiable income as long as it meets the right criteria. Chapter Four of HUD 4155.1 says, “Military personnel receive base pay, and are often entitled to additional forms of pay, such as
• variable housing allowances
• clothing allowances
• flight or hazard pay
• rations, and
• proficiency pay.
These types of additional pay are acceptable when analyzing a borrower’s income as long as the probability of such pay to continue is verified in writing.”
The FHA loan rules also instruct the lender to take into account whether the pay or benefits being reviewed are tax-exempt or not.
One important military benefit that does NOT count as verifiable income is associated with military education pay. The GI Bill features a housing allowance or stipend for many eligible service members, but this stipend cannot be counted as income by the lender. Why?
The housing allowance is only paid when the student attends classes. It is not paid over breaks or in the summer in between classes. It also has a very limited time of availability–once the student has attended a certain number of classroom time, those benefits end.
That means the pay is not “likely to continue” and is only temporary. The lender can’t use it to calculate the borrower’s debt to income ratio, therefore it’s not allowed to be included in the “income” column. Speak to a participating FHA lender if you aren’t sure whether your current VA benefits or military pay/allowances can be included in your list of verifiable income sources.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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