Does Bah Count As Income For Va Loan

Basic Allowance For Housing And Va Loan Cost Of Living Considerations

Having outlined the above BAH characteristics, the question remains, how much money will I actually receive every month?

Theres not one answer to this. As stated, BAH is pegged to rank and dependent status. But, its also adjusted for cost of living considerations. The military recognizes that service members stationed in Washington, D.C. or San Francisco will likely have higher housing costs than personnel living outside Minot AFB in North Dakota. As such, the specific amounts a service member will receive depend on his or her duty location .

The VA loan program recognizes this reality as well. Throughout the country, the VA loan has maximum guaranteed amounts for home mortgages, pegged like BAH to geographic cost of living. So, service members looking to use BAH on their VA loan will see that the two align well, that is, if you can use the VA loan to purchase a home in a certain area, its likely that your BAH will also cover your mortgage payments.

Va Loan Qualification Factors

The housing allowance does not limit VA loan approvals, but it is part of several factors above. Although many think of debt to income ratio as a mortgage qualification requirement, VA loans put an emphasis on residual income. Residual income is determined by subtracting a buyers expenses from the gross income. The difference is considered the residual income. Expenses include monthly debt payments, alimony or child support, income taxes, the calculation of utilities , and childcare expenses. In a moment, we discuss grossing up nontaxable income. Yet, this is not allowed in calculating residual income.

Housing ratio and total debt to income ratios are still important. A housing ratio is the subject homes total monthly payment including principal, interest, taxes, and insurance divided by the gross monthly income. Although there is not usually a maximum housing ratio, the percentage does play a role in an approval. Total debt to income ratio is all debts including the new mortgage divided by gross monthly income. It is possible for a military buyer to qualify with up to a 55% or even higher debt to income ratio.

Helping Veterans And Active Personnel Find Affordable Mortgages

At San Diego Purchase Loans, we are proud to help current and former military personnel find the right mortgages for their specific needs. With a staff of experts and a dedication to service, well do what we can to increase your chance of mortgage approval.

Contact us today and find out how we can help you utilize your BAH and other payments for mortgage approval!

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Is It Fair To Deny A Loan Because Of Residual Income

You might think VA residual income requirements are just another hoop to jump through to get a VA home loan. But its actually an added protection for Veterans to ensure they have enough money left over for things like food, health care, clothing, car insurance, and gasoline.

After all, theres no use owning a home if you cant afford to drive to work.

Put Your Bah Toward A Va Loan

If youre looking to use your BAH for a VA home loan, our team at SoCal VA Homes is committed to providing superior service to active service members and Veterans alike. Whether youre just looking for information or are ready to get the process started, were here to help. Call us at 949-268-7742 today!

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Loan Deferment For Active Duty And Reservists

Military Service DefermentAccording to the College Cost Reduction and Access Act under the Higher Education Act , a military student, who is called to active duty during a war or other military operation or national emergency, is eligible for a deferment on their FFEL, Direct Loan, or Federal Perkins Loan.

Active Duty DefermentThe College Cost Reduction and Access Act also allows members of the National Guard or Armed Force Reserves eligibility for deferment on their FFEL, Direct Loan, or Federal Perkins Loan. They may receive a deferment for up to 13 months after their active duty military service.To find out if your service qualifies you for a deferment, contact the Office of Veteran and Military Affairs, and contact your lender to request a military deferment.

Purchase And Construction Loans

Due to the Blue Water Navy Vietnam Veterans Act of 2019, the VA funding fee is equalized for all branches of service starting January 1, 2020. For active duty military members and veterans, this means an increase in VA funding fee costs for a period of 2 years. If you have a service-connected disability that you are compensated for by the VA or if you are a surviving spouse of veteran who died in service or from service-connected disabilities, the funding fee is waived.

• Veterans who previously lived in a home they had to then rent out will typically qualify for a no appraisal Interest Rate Reduction Refinance. The Veteran’s Administration also allows Veteran Homeowners to refinance from a Conventional loan to a VA mortgage Loan. This process, however, does require an appraisal.

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Reporting Veterans Benefits On Your Fafsa

The way in which you report income and benefits on your FAFSA may differ from the way in which you report income and benefits to the Internal Revenue Service . Veterans benefits of any kind are tax-exempt and do not need to be reported to the IRS, but veterans benefits are considered in the need-based financial aid process and must be reported on your FAFSA.

• Students veterans non-education benefits must be reported on the FAFSA, which may include:
• Disability
• Dependency and Indemnity Compensation
• VA Educational Work Study Allowances

What Is Residual Income On A Va Loan

Residual income is the amount of money that is left over each month after all of your major expenses are paid including housing, taxes, and debt payments. In order to qualify for a VA loan, you must meet a specific residual income threshold, which varies depending on the size of your family and where you live.

How do you figure residual income?

Residual income is calculated as net income less a charge for the cost of capital. The charge is known as the equity charge and is calculated as the value of equity capital multiplied by the cost of equity or the required rate of return on equity.

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Using Active Duty Bah To Qualify For A Va Loan

When you apply for any home loan, youll need to demonstrate that you have enough income to make your monthly mortgage payments. And, lenders confirm this through a metric known as debt-to-income ratio, or DTI. They calculate this by adding up all of your monthly debt payments including your future mortgage payments and dividing them by your gross income.

For example, assume you have $200 in monthly car loan payments, and your future mortgage payment totals $1,300 per month. Now, assume you have $5,000 in gross monthly income. In this scenario, youd have a DTI of 30% .

Generally speaking, the VA recommends DTI ratios lessthan 41%. But, active duty service members can use their basic allowance for housing towards DTI requirements. In other words, lenders will count both your military base pay and your BAH when they calculate DTI.

This BAH inclusion provides active troops significantly more buying power. Continuing the above example, assume that, of $5,000 in monthly income, $3,500 was military base pay and $1,500 BAH. Without BAH, this buyer would have a DTI of 43% , which likely wouldnt meet lender requirements. But, by adding $1,500 in BAH to gross income, that DTI drops to 30%, well within lender standards for VA loans.

To consider your BAH in gross income, lenders will typically require copies of your Leave and Earnings Statement, or LES. If unable to access a copy online, your unit admin shop will provide one for you.

Do You Have To Claim Gi Bill Benefits On Taxes

GI Bill payments are not taxable income. Veterans whose only income for a given year was GI Bill payments do not have to file taxes. If the veteran had other income such as wages or investment dividends, a tax return may need to be filed but the cash benefits received through the GI Bill are tax-free and do not need to be claimed.

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Access To Specially Adapted Housing Grants

Do you have a disability that affects your mobility or sight? You may qualify for a SAH grant.

SAH grants can go toward constructing a special home designed to fit the needs of the disabled individual. Or they allow you to modify an existing home to make it more accessible. SAH grants can also pay the unpaid balance of an adapted home already purchased without VA grant assistance.

In 2020, you may qualify for a grant of up to $90,364, and you may use the grant up to three times as long as your disability qualifies. Because the SAH is a grant and not a loan, you dont need to pay it back.

Fha Loans Verifiable Income And Va Benefits

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

rations, and

proficiency pay.

These types of additional pay are acceptable when analyzing a borrowers 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 availabilityonce the student has attended a certain number of classroom time, those benefits end.

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Access To Other Adaptation Grants

Disabled veterans may also qualify for a Temporary Residence Adaptation grant to add modifications to your property that make it easier to navigate if you live with a family member. Like SAH grants, you wont need to pay back your TRA grant, which makes them a powerful tool for veterans with mobility-related disabilities.

Property Tax Exemption

Property taxes fund things like libraries, fire departments, and local road and development projects. Disabled veterans property tax exemptions can lower the amount you must pay in property taxes.

These tax exemptions arent a federal program, and they vary by state, so check with your local VA office to learn the exemptions youre eligible for. Some states offer an exemption to all veterans, while other states limit this benefit to veterans who are currently receiving disability payments. Disabled veterans are 100% exempt from property taxes in some states.

How The Bah Works For Va Loans

In order to verify your military housing allowance, lenders use your Leave and Earnings Statement . Once its verified, your BAH funds are treated like any other income, with one key difference. Since these funds are nontaxable, and debt-to-income ratio is calculated using pre-tax income, the lender will actually inflate the BAH amount to estimate what a pre-tax number would look like. This means you may qualify for a larger loan amount with your BAH funds than you would with the same amount in normal, taxable income.

Looking for information on VA loan eligibility and DTI? Check out our page on VA Loan Qualification Factors.

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Considerations When Nearing End Of Active Duty Service

Active troops nearing the end of their service face additional requirements when using a VA loan. As stated, before approving a VA loan, lenders want to make sure that you can make your monthly payments. If youre nearing the end of military service, youre also nearing the end of military paychecks. This concerns lenders, and theyll want some guarantees that you can continue making loan payments.

According to VA guidelines, lenders must identify service members who are within 12 months of release from active duty or end of contract term. If within this time period, lenders must then determine whether the loan applicant A) plans on reenlisting, and B) is to reenlist. To meet this requirement, lenders will ask for one of the following items:

• Documentation that the service member has already reenlisted or extended his or her service beyond 12 months from the loan closing date.
• If not reenlisting, the service member must provide a valid civilian job offer, to include starting date and pay.
• If planning on reenlisting, the service member must provide a signed statement that he or she plans on enlisting or extending service beyond 12 months from the loan closing date.

Borrowers in this final category must provide an additional statement from their commanding officer. This statement must declare that the loan applicant is eligible to reenlist and that no reason currently exists to deny this reenlistment request.

Basic Allowance For Housing Frequently Asked Questions

Please download the BAH Primer.

First, a legislative proposal was approved in the Fiscal Year 2015 National Defense Authorization Act that allows the Department to reintroduce a member cost-sharing element , not to exceed one percent of national average housing costs by grade. Second, renter’s insurance was eliminated from the 2015 Basic Allowance for Housing rate computation.

An out-of-pocket amount was incorporated early in the Basic Allowance for Housing program to limit Basic Allowance for Housing rates to a defined budget. These out-of-pocket costs were reduced from nearly 20% in 2000 to elimination in 2005.

The actual impact of the changes to Basic Allowance for Housing computations will vary depending on a member’s housing choices. Members who rent a median-priced property will have to pay a small amount above their Basic Allowance for Housing rate. Members who choose to economize in their housing choices may have all their housing expenses covered by Basic Allowance for Housing. Some members, renting properties above the median price for the area, have already been paying some housing costs out of pocket.

On average, the cost of renter’s insurance contributed about $20/month to the Basic Allowance for Housing rates, with the actual amount varying by grade and location. Members who obtain renter’s insurance will now need to budget for this expense separately.

Yes. An individual is authorized the larger of the:

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How Does Va Residual Income Work

Residual incomeincomeResidual incomeVAresidual income

. In this regard, how is VA residual income calculated?

Residual income is simply what’s left over after all your expenses are paid. To calculate the number, you simply subtract all the bills mentioned above that make up your DTI ratio. If your DTI ratio is 43%, you now must have a residual income of $1,203 to be approved for a VA loan.

Also Know, what is residual income mortgage? Residual income is the monthly household income which remains after a homeowner has made monthly payments to on all of his credit accounts. This includes the mortgage and escrows, of course, as well as whatever student loans, car payments, credit card bills and whatever other obligations exist.

Likewise, people ask, what is residual income on a VA loan?

Residual income is the amount of money that is left over each month after all of your major expenses are paid including housing, taxes, and debt payments. In order to qualify for a VA loan, you must meet a specific residual income threshold, which varies depending on the size of your family and where you live.

How do you figure residual income?

Residual income is calculated as net income less a charge for the cost of capital. The charge is known as the equity charge and is calculated as the value of equity capital multiplied by the cost of equity or the required rate of return on equity.