How to Get a VA Loan for Self Employed Veterans

As a self-employed veteran, you might wonder if you’re eligible for a VA home loan and what the process is like. The good news is that, yes, you may qualify for a VA loan, even if you’re self-employed. However, there are some specific requirements and documentation processes that you must follow as part of your VA loan application.

In this article, we’ll guide you through everything you need to know about getting a VA loan as a self-employed veteran. We’ll cover eligibility, income documentation, and other frequently asked questions to understand the process.

Can you get a VA Loan if you are self-employed?

Yes, veterans who are self-employed are eligible to apply for a VA loan. The key to a successful VA loan application is your ability to provide sufficient documentation proving your income and financial stability. Self-employed veterans must meet all the general VA loan eligibility guidelines and other lender requirements, including demonstrating creditworthiness and fulfilling the income verification process.

The VA doesn’t have additional restrictions for self-employed applicants; however, lenders will assess the stability of your income to ensure that you can afford the monthly mortgage payments. This typically involves providing additional documentation to verify your income as a self-employed individual.

What is considered self-employment?

Self-employment for VA loan purposes generally refers to individuals who are not on a regular payroll but instead operate their own business or work as independent contractors. This includes:

• Sole proprietors (freelancers or business owners)
• Contractors
• Partners in a business
• Limited liability company (LLC) owners

If you own a family business or have part-ownership in a company, you still count as self-employed as long as you’re actively involved in running the business. Keep in mind that different lenders might have slight variations in how they assess self-employment, but as long as you can prove the nature of your work and its income potential, you should meet the qualifications.

How to document self-employed income

Documenting your income is one of the most crucial steps in applying for a VA loan as a self-employed veteran. Self-employed applicants generally need to provide more documentation than salaried individuals, as your income might fluctuate. Some key documents typically required may include:

• Last two years of signed tax returns (including all schedules, W-2s or 1099 forms)
• The last two years of a profit and loss statement or one showcasing year-to-date information
• A current balance sheet
• Bank statements (usually for the last two months)

Alternatively, instead of the last two years of signed tax returns, you may be able to provide individual income information obtained from the IRS via either one of these forms:

• Form 8821 (or an alternate form acceptable to the IRS that collects comparable information)
• Form 4506 (or an alternate form acceptable to the IRS that collects comparable information).

Some lenders may consider applicants with less than two years of documented self-employment income, if you can provide proof of income or employment that meets their requirements. It is best to speak with a trusted lender to learn more about your eligibility.

VA loan documentation when you have a business entity

If you have a business entity such as an LLC or corporation, you should be prepared to provide federal business tax returns for the last two years. If the most recent year’s tax return has not yet been prepared, you may need to provide a profit and loss statement for that year.

Providing these documents helps lenders verify that you have a stable and reliable income. The two-year tax return history is particularly important for ensuring your self-employment is consistent.

It’s important to note that your financial statements must be sufficient for a mortgage underwriter to determine the necessary information for loan approval. The lender may require accountant-prepared financial statements or financial statements audited by a Certified Public Accountant if needed to make such a determination due to the nature of the business or the specific information included in the financial statements.

You can speak with a lender like USAA Bank to understand any specific self-employed VA loan requirements or documentation necessary for reviewing your VA home loan application.

VA Loan requirements for self-employed individuals

When applying for a VA loan as a self-employed veteran, you must meet the standard VA eligibility requirements as well as those specific to income verification for self-employed individuals.

Here are the key VA loan requirements for self-employed veterans:

• Proof of military service: Like all VA loan applicants, you must have served the required amount of time in the military or have a qualifying discharge status.
• Credit score: The VA doesn’t set a minimum credit score, but you’ll want to confirm specific VA loan credit score requirements with your lender.
• Debt-to-income ratio (DTI): VA loans generally allow a higher DTI ratio, but the lower your DTI, the better your chances. Lenders typically prefer a DTI ratio under 41%.
• Stable and sufficient income: As a self-employed veteran, you must prove a steady and reliable income, typically via the above-mentioned documentation.

Family businesses and VA Loans

Family-owned businesses are treated like other self-employed income. If you work in a family-owned business, you may still qualify for a VA loan, but you’ll need to provide evidence that your income is stable and consistent. Be sure to check with your lender to understand their specific documentation requirements for family business income.

How self-employment income is calculated

As a self-employed veteran, you will likely have to calculate your income differently than other salaried VA loan applicants. Here’s an overview of how income is generally calculated for self-employed individuals:

• Gross income: This includes all revenue the business generates before any expenses are deducted.
• Net income: Refers to the business’s profits after subtracting operating expenses.
• Adjusted income: If you write off business expenses, such as vehicle expenses or depreciation, your income might be adjusted to include or exclude some  allowable business deductions, which can impact your qualifying income. Your lender may use this adjusted income figure to assess your ability to repay the loan.

Generally, mortgage underwriters will use the average of the last two years adjusted income, or the lesser of the two most recent years adjusted income, to calculate your qualifying income. If you believe your income has increased, or is actively increasing, you may need to provide sufficient documentation proving that your recent increase in income is likely to continue. You may want to consult with an accountant or tax professional for more accurate and personalized income calculations.

Tools and resources provided by USAA Federal Savings Bank should be considered general advice and for informational purposes only. All information is subject to change without notice and may not apply to all members. Products, services or features mentioned may not be offered by USAA Federal Savings Bank. The information contained is not intended to represent any endorsement, expressed or implied, by USAA Federal Savings Bank or any affiliates.

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