Getting a VA Loan When Self-Employed: A Complete Guide

Self-employment is becoming more and more popular these days. With the freedom and flexibility it offers, it’s no wonder why so many veterans are embracing self-employment and entrepreneurship. But how does being self-employed impact your ability to qualify for a VA home loan? Can you still get a VA loan if you’re self-employed?

The short answer is yes, you can absolutely still get a VA mortgage if you are self-employed. However, there are some important things to keep in mind. VA lenders will need to verify and document your income differently than if you were a W-2 employee.

In this complete guide we’ll cover everything you need to know as a self-employed veteran about getting approved for a VA home loan including

• Who is considered self-employed for VA loans
• Documentation needed to verify self-employment income
• How business losses affect your eligibility
• VA guidelines for self-employed borrowers
• Tips for self-employed VA loan applicants

Let’s start by looking at what exactly is considered “self-employment” when it comes to VA loans

What Counts as Self-Employment for a VA Loan?

Self-employment encompasses a wide variety of work scenarios. Here are some examples of what is generally considered self-employment when applying for a VA mortgage:

• Sole proprietorship – You fully own and operate a business by yourself
• Partnership – You own a percentage of a business along with other partners
• Independent contractor – You work freelance jobs and receive 1099 forms as income
• Side business – You have a W-2 job but earn extra income from a side business

VA lenders have specific policies on what they consider self-employed. For example, some lenders may require you to own at least 25% of a business to count it as self-employment. Working for a family business is another scenario that can be classified differently depending on the lender.

The key is to check with your specific VA lender to understand how they define self-employment for VA loan eligibility Their definition can impact what income documentation you need to provide,

Documents Needed to Verify Self-Employed Income for VA Loans

As a self-employed borrower, verifying your income will require some additional documentation compared to W-2 employees. Here are some common documents VA lenders may ask for:

• 2 years of personal and business tax returns – This provides proof of earnings over time. Lenders will look at your average earnings.

• Year-to-date profit and loss statement – Shows how your business is currently performing.

• 1099 forms – For independent contractors, Form 1099s help verify your freelance income.

• Business bank statements – Can help supplement other documents to confirm business revenue and expenses.

• Schedule C, E, or F – Tax forms that report income and losses from self-employment.

Some lenders may also ask for business registration documents, such as licenses or incorporation paperwork. The specific requirements can vary by lender.

How Do Business Losses Affect VA Loan Eligibility?

One important thing for self-employed veterans to understand is that lenders can only count your net income, not gross income, when calculating your VA loan eligibility.

This means any business losses or expenses you write off on your taxes will lower the income amount the lender can consider. For example:

• Your business has $100k in gross revenue
• You wrote off $30k in expenses and losses
• So your net income is $70k

The lender can only use that $70k net profit number, not the $100k gross, when assessing your VA loan eligibility.

VA Self-Employed Income Guidelines

Beyond just verifying your income, self-employed applicants must still meet general VA loan requirements, including:

• Provide VA Certificate of Eligibility
• Meet VA residual income guidelines
• Have a debt-to-income ratio under 41%
• Have a minimum credit score of 620 (typically)

VA lenders understand that self-employment income can fluctuate more than salaried income. But they still must follow VA guidelines requiring “stable and reliable” income to qualify borrowers.

That’s why the two-year history is important. It demonstrates an established earnings trend over time. Significant drops in income year-over-year may require a written explanation or trigger further scrutiny from underwriters.

Tips for Getting a VA Loan When Self-Employed

Here are some helpful tips for veterans who want to get a VA mortgage based on their self-employment income:

• Work with a lender familiar with self-employed VA loans – Underwriters experienced in this area will know what to look for.

• Get your documentation in order early – Give yourself plenty of time to pull together tax returns, bank statements, and other paperwork.

• Explain any gaps or discrepancies – Be prepared to provide context if your income history has any red flags like gaps, big losses, etc.

• Highlight steady clients – If you have long-term business clients, highlight this consistency to demonstrate earnings stability.

• Consider a lower loan amount – Opting for a lower loan amount relative to your income can help if your income fluctuates.

• Build up cash reserves – Solid liquid assets help reassure lenders if your income does vary month-to-month.

The bottom line is that self-employed veterans can absolutely qualify for a VA home loan if you have a two-year history of stable income. Put together a solid application by working with an experienced VA lender, getting your paperwork ready, and highlighting factors that demonstrate your income reliability. This will put you in a great position to get approved for the VA mortgage that fits your needs.