W-2 Income Only VA Loans

A Complete Guide to W-2 Income Only VA Loans  

Veterans and active-duty military members tend to lean towards homeownership with the help of VA loans since they do not require a down payment, and additional costs like private mortgage insurance (PMI) are eliminated. Dale Elenteny, a senior mortgage loan originator for GCA Forums Mortgage Group, says the following about W-2 income only VA loans:

W-2 income only VA loans are available for borrowers who are W-2 income only. Borrowers cannot have a business on the side or a part-time job paying 1099 to be eligible for W-2 income, only VA loans. Borrowers cannot have rental income on their tax returns to qualify for W-2 income, only VA loans.

One unique subset is the W-2 Income Only VA Loans, which is tailored for borrowers who rely solely on W-2-issued income, excluding self-employment and investment income. This blog will delve into W-2 Income Only VA Loans, discussing benefits, eligibility, requirements, the application process, and invaluable tips.  In the following paragraphs, we will cover W-2 income only VA loans.

What are W-2 Income-Only VA Loans?  

A W-2 Income Only VA Loan is a mortgage offered by the U.S. Department of Veterans Affairs (VA) that considers solely the borrower’s W-2 income for qualification. W-2 income originates from wages, salary, and tips that an employee receives from their employer.  John Strange, a senior loan officer at GCA Forums Mortgage Group, says the following about W-2 income only VA loans:

W-2 income only VA loans work best for veterans or servicemen and women with stable, documented employment and limited income due to a lack of rental properties, freelance work, or other investments.

Compared to other VA loans, which might consider different types of income, W-2 Income Only VA Loans clear a borrower’s qualification with solely W-2 income, simplifying the underwriting process for many.

Who Should Get a W-2 Income-Only VA Loan?  

VA loans are popular due to their favorable terms for veterans, and so are W-2 Income Only VA Loans for people with W-2 income for their specific benefits:

Easier Verification of Income:

Fewer documents must be submitted. A lender must verify W-2 income, allowing faster approval for borrowers with streamlined income sources.

VA Loans Require No Down Payment:

Like all other VA loans, W-2 Income-Only VA Loans don’t require a down payment, greatly increasing homeownership access.

VA Loans Require No PMI:

W-2 Income Only VA Loans do not require private mortgage insurance, lowering loan payments already lower than traditional mortgages.

VA Loans Have Competitive Interest Rates:

Conventional mortgages are almost always more expensive throughout the loan duration than VA loans, which offer significantly lower rates.

Flexible Credit Requirements:

VA loans are easier to qualify for with lower credit scores, which helps those who earn W-2 income but have poor credit.

Streamlined Underwriting:

The underwriting process is simple with W-2 earners due to the lack of income verification, which has to be done, making it faster and easier for the lender.

Understanding Eligibility for W-2 Income Only VA Loans

For a W-2 Income Only VA Loan, borrowers must satisfy the VA loan eligibility guidelines and an income-related criterion. Here’s a summary:

VA Loan Eligibility  

The VA sets eligibility based on military service:

Veterans Affairs Active-Duty Service Members:

Must have served at least 90 continuous days.

Veterans:

Must meet minimum service requirements of 181 days during peacetime or 90 days in wartime.

National Guard and Reserves:

Must have completed at least six years or 90 days of active duty during wartime.

Surviving Spouses:

Unremarrying spouses of members who served and died—or were disabled—because of services rendered may qualify.

Other Eligible Groups:

Other commissioned Public Health Service or National Oceanic and Atmospheric Administration officers may qualify.

Borrowers must obtain a Certificate of Eligibility (COE) from the VA to prove their verifiable eligibility. This can be requested using a lender or the VA’s eBenefits portal.

W-2 Income Requirements

For a W-2 Income Only VA Loan, lenders concentrate only on W-2 income, which must be:

Stable and Reliable:

Generally, borrowers need at least two years of W-2 income from one employer or one area of employment. Job transitions within the same industry may be accepted if income is stable.

Verifiable:

Employment income must be proved through W-2 documents, pay stubs, and employer verification. In most instances, current payslips must not be older than one month, and W-2s covering the last two years must be provided.

Sufficient for Loan Repayment:

The borrower’s W-2 income should satisfy the lender’s debt-to-income ratio. Almost all lenders require a DTI of 41% or lower, and some lenders with additional guiding factors may have limitations on the DTI ratio.

Credit and Financial Requirements

Even though VA loans are more flexible, they do not come without requirements.

Minimum Credit Score:

Most lenders consider a credit score of 620 the threshold. However, some are willing to go lower with better credit profiles.

Residual Income:

The VA requires applicants to possess sufficient residual income to sustain basic living expenses. Qualifying thresholds for residual income differ depending on the area and size of the family.

Manageable Debt:

A ratio of 41% is preferred. The figure is constructed using a W-2 income and monthly debt obligations.

Property Requirements

The house must comply with the VA’s Minimum Property Requirements (MPRs) that guarantee its safety, sanitation, and structural integrity. The property also has to be the borrower’s primary residence.

Advantages of W-2 Income-Only VA Loans

WI-2 Income Only VA Loans come with Benefits for borrowers with simple income.

Simple Process:

Secondary income sources do not need to be documented, making the process easier.

Streamlined Processing:

There is less income information to consider, and underwriting tends to be faster.

Perfect For First-Time Homebuyers:

Veterans with stable W-2 jobs and limited savings appreciate no down payment and lower monthly costs.

Income Evaluation:

Verifying income and payment history with W-2s makes it easier to approve loans for reliable earners.

Challenges and Considerations

These loans have advantages, but the challenges are focusing on the W-2’s sole income.

Restricted Income Perception:

Borrowers with considerable non-W-2 income (bonuses, freelance work) will struggle with partial W-2 income as it lowers their eligibility for higher amounts.

Employment History:

Gaps in employment history can cause problems regarding approval unless there is a reasonable explanation, such as education or medical leave.

VA Funding Fee

Most VA loans, including W-2 Income Only VA Loans, incur a funding fee ranging from 0.5% to 3.3% of the loan amount. However, it may be added to the loan, increasing the total amount owed.

Lender Variations

Not all VA-approved lenders provide a W-2 Income Only VA Loan; some may have different criteria.

The Application Process

Obtaining a W-2 Income Only VA Loan requires the following stages:

Get a Certificate of Eligibility (COE):

You can apply for your COE via the eBenefits portal or directly with the lender. Military service documentation, such as a DD-214 for veterans, is required.

Pick a VA-Approved Lender

Find a VA loan lender in Eagan, MN, with extensive experience in VA loans, especially W-2 Income-Only ones. Read through available rate sheets, lender reviews, and ratings.

Collect Documentation

Submit the payroll form within 30 days, the last two years W-2 forms, a bank statement, and a valid ID. Your lender may also request employment verification.

Get Pre-Approved

Pre-approval strengthens your position as a buyer by determining the loan amount, which is based on W-2 income, credit profile, and DTI ratio.

Locate a Property

Please collaborate with a realtor to view houses within your budget that comply with the VA MPRs.

VA Appraisal and Underwriting:  

An assigned lender completes a veteran’s appraisal to verify that the home meets the MPR Minimum Property Requirements and that its value is comparable to the loan amount. The underwriter analyzes your W-2 income, credit profile, and other relevant financials.

• Close on the Loan:  You will receive your new home keys after signing the closing documents alongside any other required payments, including closing costs or funding fees unless the fees are to be incorporated into the loan.
• Tips for Success: Providing a fully documented W-2 Income Only VA Loans will be made easier by:
• Keeping a Steady Job: Be employed for the application process since mortgage lenders prefer unchanged incomes.
• Improving Credit Scores: Could you reduce outstanding debts and fix the blunders on the credit report before applying?
• Maintaining a Low DTI Ratio: Lower monthly obligations increase the debt-to-income ratio.
• Collaborating with a Specialized VA Loan Lender: Avoiding W-2 income errors meant for specialists can eliminate unnecessary holdups.
• Preparing for Closing Costs: Even if there’s no down payment, expect to incur closing costs ranging between 2% and 5% of the loan amount. Alternatively, propose seller concessions.
• Knowing the Funding Fee: Are you exempt as a veteran? If not, you should plan to add the fee to the loan.

Frequently Asked Questions on W-2 Income Only VA Loans

May I add bonuses or overtime to my W-2 income only VA loans?  

• W-2 income only VA loans with bonuses or overtime can be included IF it has been consistent for over two years and is documented with accompanying W-2s.
• However, sporadic bonuses might not be eligible.  

Do all lenders offer W-2 income-only VA Loans?  

• Not all VA-approved lenders specialize in this loan type.
• Therefore, it is best to look around.
• Some lenders may have rare knowledge of W-2-only stipulations.  

Can I get a W-2 Income Only VA Loans for a second home?  

• No, this VA loan and other VA loans are solely for primary residences.  

What if my credit score is low?  

• Some lenders set the minimum credit score to 620 but claim weak DTI (Debt-to-Income).  

W-2 Income Only VA Loans are great for veterans and service members with stable, documented W-2 earnings who need a home. The VA loan’s focus on direct W-2 income simplifies the qualification process, preserving benefits such as no loan payment, no PMI, and competitive rates. Understanding the documentation and working alongside a skilled lender greatly improve one’s chances of getting approved.

As a veteran or active-duty service member with W-2 income, take the first step toward homeownership by consulting a VA-approved lender to see if this loan option is right for you.