If you are active military, I will bet you a nickle there are very few loan officers who know how to read your LES (leave and earnings statement / also referred to in the Civilian world as pay stubs). VA borrowers have unique Military Pay that shows as BAS, CMA, BAH Jump, Flight, Combat or Career Sea Pay that we just don’t see on regular pay stubs… which is why we get questions about how Underwriters review Military Pay, Allotments on a VA Loan
For some of the Veteran’s we’ve helped the LES has also shown HDP, FSSA DLA and ReEnlistment Bonuses that we will need to present to the Underwriters. We understand what an Underwriter will take, and how to present these unique pay entitlements that aren’t normally a feature of the civilian equivalent.
Military income documented by a Leave and Earnings Statement (LES) is available electronically, and we will need 2 statements (months) printed off. We will also need 2 years of W-2 to support what you’ve been earning. In some cases, we might also have questions about what you plan to do when you separate from the Service – especially if that date is approaching in less than 6 months.
The LES does not simply report the amount of pay and deductions for the military member; it also shows any vacation time accumulated, and another detail known as an “allotment” where applicable.
An allotment is an automatic payment the military member elects to have deducted–for example, it can be used to purchase savings bonds, contribute toward the GI Bill or other optional programs. An allotment can also be used to pay back the government in cases of overpayment, advance pay where the military member was “paid forward” or other situations.
When a military member has an allotment, he or she may wonder how a lender might take that into account when it comes time to consider the VA loan applicant’s debt-to-income ratio. What do VA loan rules say about allotments and how they are to be viewed by the lender?
Here’s what we see as currently being allowed as income, and what is considered a onetime Forms of Allotment that WILL NOT count as income include:
- BAS / Basic Allowance – will normally be included as income
- CMA for Clothing – will not be included, it’s considered a business expense
- BAH / Basic for Housing – will normally be included as income
- Career Sea Pay – will be included as income
- Flight Pay – will normally be included as income
- Jump Pay – will normally be included as income (if it’s part of you job)
- Combat Pay – will not be included, unless we can show at least a 2 year history, and it appears likely that you are going back. Income must be “guaranteed” as continuing for 3 full years after closing.
- HDP / Hardship – Treated like Combat Pay
- FSA / Family Seperation – will normally be included as income
- DLA / Dislocation – Is considered a reimbursed business expense / one time reimbursement for relocation
- ReEnlistment Bonuses received in installments that will continue for 3 years can be included / otherwise, it will not be included
- FSSA / Family Substance Supplement Allowance – will be included as income is it will continue for 3 years
According to VA Pamphlet 26-7, the VA Lender’s Handbook, “Significant debts and obligations of the applicant must be verified and rated.” If the VA borrower’s debts include a debt to the government that is paid in the form of an allotment, this will be taken into account. In fact, the VA loan rulebook has specific instructions to the lender in these cases.
“When a pay stub or LES statement indicates an allotment, the lender must investigate the nature of the allotment to determine whether the allotment is related to a debt.”
If you are a military member with an allotment that is NOT a debt, it may be in your best interests to explain the allotment to us and help us document that it is not debt-related. Because, that statement in the Veteran’s Rulebook doesn’t make it sound like an Allotment is income… Don’t assume that the underwriter will automatically understand the LES Statement.
As I said, many loan officers don’t have much experience with determining the nature of these allotments. We’ve seen Veteran’s turned down because the loan officer did not document the file properly and the underwriter was not as familiar as we would hope with military pay documents. They assumed, incorrectly, that “allotment” equals “indebtedness”. If you are using an allotment for a purpose other than paying a debt, talk to a Mortgage Loan Officer who gets it.
Many Veteran’s don’t realize that there is actually no limit on the number of VA Guaranteed Home Loans a veteran can receive. This typically surprises veteran borrowers who have used the program before. In reality, a Veteran may qualify (in some cases) to borrow for a home using VA Loan benefits for a Second Home (especially if there is a child involved in a divorce).
Because many of the VA mortgage loan income requirements are so difficult to wade through, we offer specialized assistance specifically for veteran’s with questions about how Underwriters review Military Pay, Allotments on a VA Loan. Please call Steve and Eleanor Thorne at 919 649 5058