A VA loan is a type of mortgage available through the United States Department of Veterans Affairs, and is aimed at assisting active military service members, veterans, and surviving spouses to purchase homes. But landing a VA loan as a self-employed person can pose some unique challenges—most often in the form of added scrutiny from lenders. While it’s true that self-employment income can at times be less consistent than salaried income, with 72% of the US military made up of internet-era millennials, it’s no surprise that this conversation is more relevant now than it’s ever been. Self-employment is not going anywhere—it’s quickly becoming the main idea as fewer and fewer people (vets included) opt to work 9-5 for someone else.
Defining ‘self-employment’Self-employment can refer to a number of very different employment scenarios. The most common of these include: would-be borrowers with sole ownership of their business; those who own at least 25% of a business; and freelance or contract workers. The specific policies and guidelines pertaining to your type of self-employment can vary widely depending on the lender in question, among other factors.
But can self-employed individuals still access VA loans?The short answer is yes, however, it’s important to note that VA loan qualification requirements for self-employed applicants are pretty strict. It’s also worth noting that other programs such as the FHA loan program tend to have more flexible eligibility criteria—particularly if you have bad credit or a low income—but they don’t offer all the benefits of a VA mortgage, which allows you to purchase a home with zero dollars down and no mortgage insurance. If you qualify, a VA loan is typically the better choice. Ultimately, it’s important to do your homework and compare loan options before making a decision.
Required VA loan documentation for self-employed vetsIf you’re self-employed, lenders will require a good deal of information in addition to the usual requirements listed on the VA loan application. Self-employed applicants who qualify for VA loans must demonstrate to would-be lenders that their business is stable. This can involve some heavy paperwork. To determine whether you have the ability to repay the loan, lenders will request documents that show the last two years (or more) of your income trajectory. If your income declines each year, the lender will ask you for a written explanation. And if the decline is significant, your application will likely be refused. To apply as a self-employed veteran, you will asked to submit the following (among other documents):
- Your current financial statement, including a year-to-date profit and loss profit
- Two consecutive years’ worth of individual income tax returns
- Two consecutive years’ worth of business tax returns (in cases of corporation or partnership)
- A list of your partners and/or stockholders