April 8, 2016
Military members and veterans have plenty of reasons why they might choose an FHA mortgage or refinance loan. Regardless of the reasons why you choose to go FHA, there are rules for military income verification you should know that will help both in the planning stages and when you’re submitting paperwork to the lender.
To begin, military income is not simply defined as basic pay. Military pay can include a variety of things. HUD 4000.1 has a definition that clears up any ambiguity about the basic pay and allowances allowed to be included in the debt to income ratio once verified:
“Military Income refers to income received by military personnel during their period of active, Reserve, or National Guard service, including:
–base pay
–Basic Allowance for Housing
–clothing allowances
–flight or hazard pay
–Basic Allowance for Subsistence
–proficiency pay
The Mortgagee may not use education benefits as Effective Income.”
The last line refers to the housing allowance or other benefits to the veteran using the GI Bill to attend school, or state-provided veteran education benefits that may be similar. The income from military education benefits (such as the Post 9-11 GI Bill housing stipend) is not considered “stable” or “likely to continue” because of the limited duration of such benefits and the fact that they are only available for the times school is actually in session in most cases.
How is the income listed above to be verified by the lender? HUD 4000.1 has the required documentation the lender must gather for military income sources:
“Borrowers military Leave and Earnings Statement (LES). The Mortgagee must verify the Expiration Term of Service date on the LES. If the Expiration Term of Service date is within the first 12 months of the Mortgage, Military Income may only be considered Effective Income if the Borrower represents their intent to continue military service.”
Furthermore:
“The Mortgagee must use the current amount of Military Income received to calculate Effective Income.” A lender may want to know if the borrower has an upcoming promotion that could affect the amount of income within a certain time frame from loan closing–be sure to let your loan officer know if your current income is due to change, how soon, and by how much.
Verifying military income isn’t that much different than verifying civilian income for an FHA mortgage loan, but borrowers will need to work closely with the lender in cases where military status is due to change somehow due to things such as the previously mentioned promotion and pay issue, or if you are about to switch from Guard/Reserve to Active Duty (or vice versa), retire or separate, etc.
Do you work in residential real estate? You should know about the free tool offered by FHA.com. It is designed especially for real estate websites; a widget that displays FHA loan limits for the counties serviced by those sites. It is simple to spend a few seconds customizing the state, counties, and widget size for the tool; you can copy the code and paste it into your website with ease. Get yours today:
http://www.fha.com/fha_loan_limits_widget
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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