If a Lender Told You Your Drill Pay Won't Count for a VA Loan, Read This

If you serve in the Reserves or National Guard, and a lender has told you your drill pay won't count toward your VA loan, this post is for you. I'm Jason Sharon, a licensed mortgage broker with Home Loans Inc, and I want to walk you through a situation that comes up often, using a fictional example named Madison.

Madison's situation

Madison is an illustrative example, not a real client. She lives near Fort Jackson, South Carolina. She has a civilian job, and she also drills with her unit, so she has two sources of income. When she talked to a lender about a VA loan, the lender dismissed the drill income. She walked away believing that part of her pay simply doesn't count.

A lot of Reserve and National Guard members hear some version of that. The tough part is that a quick no sounds final. It usually isn't the whole story.

What the VA guideline actually says

The VA guideline addresses this directly. Here is the text, word for word:

"Income derived from service in the Reserves or National Guard may be used if the borrower has served in such capacity for a period of time sufficient to indicate a good probability that such income will continue beyond 12 months. The total period of active-duty and reserve service may be helpful in this regard. Otherwise, this income may be used to offset obligations of 6 to 24 months duration. Lenders must consider if a borrower whose income is being used to qualify for a loan may have a change in income due to participation in a Reserves/National Guard unit subject to activation."

Read that slowly. It does not say drill pay is excluded. It sets up a test: has the borrower served long enough to indicate a good probability that the income will continue beyond 12 months?

Breaking it down in plain English

First, the income may be used when your service history points to continuation. That is a test of continuance, not a ban.

Second, your total period of active-duty and reserve service may be helpful. That means your whole service record can be part of the evidence, not just your current unit.

Third, if the income doesn't meet the continuance test, the guideline says it may still be used to offset obligations of 6 to 24 months duration. Ask your lender how that applies to your file.

Fourth, lenders must consider whether a unit subject to activation could change your income. That is a fair point for them to weigh, and it is part of the same guideline.

The question Madison asks

Instead of arguing, Madison asks a specific question. You can use it word for word:

"Under the VA guideline, Chapter 4, Topic 2, Subsection l, on Reserve and National Guard income, how are you evaluating whether my income will continue beyond 12 months?"

Then she follows up:

"If it doesn't meet that test, can the income still be used to offset obligations of 6 to 24 months duration?"

Those two questions move the conversation from a flat no to a documented answer. A lender who has actually applied the guideline can tell you how. A lender who hasn't may need to take a second look.

What to bring

Bring your service history showing your total active-duty and reserve service. The guideline specifically points to the total period as potentially helpful, so having it in hand makes the conversation concrete.

What this does and doesn't mean

I want to be straight with you. This is not a promise that your income will be used or that any loan will be approved. Every file is different, and underwriting looks at the full picture. What the guideline gives you is a fair test and a right to ask how it is being applied.

It also means that when you hear "your drill pay doesn't count," you can respond with something better than frustration. You can ask for the reasoning, in the language of the guideline itself.

Next step

If you drill with the Reserves or National Guard and want a second opinion on how your income is being looked at, call me at 843-LOW-RATE. I find the path.

Home Loans Inc - Jason Sharon, Mortgage Broker. Company NMLS #1728740, Jason Sharon NMLS #1281448. Equal Housing Opportunity.