VA Disability Income For VA Home Loan

Today we're covering five factors that influence whether you should wait for your VA disability compensation award to purchase a home and what factors to consider when buying a home and using that amazing VA home loan. Stick around till the end as we're going to cover how to manage your back pay, saving, and budgeting all in the hopes of home ownership one day. So the first thing we're going to talk about is the VA funding fee because this can be a significant fee. It can go up to 3.3% with a hundred percent financing if you've used the VA loan before. So they do in a way encourage you to put a down payment because that funding fee is going to be lower and it's one of the only fees, it's actually the only fee you could roll in on a purchase minus if you do it a VA assumable loan, then you do have to pay a 50 basis point upfront fee, right? And if you're buying at a hundred percent financing with a funding fee, technically buying upside down, which is a big negative, it takes you long. Well, in essence, it takes you longer than to be able to sell your property and get a profit. Now, the one thing with the VA funding fee is you don't have to pay for it if you have a minimum of a 10% service connected disability. This is why when we talk with people that are thinking about filing for their compensation, that you do at least file an intent to file prior to closing on your mortgage. Yes, you still would have to pay that VA funding fee and however long it takes you to go through that process to be awarded a 10% or higher rating, as long as the effective date is going to be prior to your closing date, that is a huge factor in being able to get that VA funding fee given back to you. Typically what the VA does from past experiences, they just literally write you a check and it goes right to you. Now, if you're on active duty, it's a little bit different because even though you may have a proposed rating prior to getting out of the service, like being medically discharged or going just regular retirement, your effective date will be your discharge date. So kind of keep that in mind. So if you buy before then, you're most likely not going to be getting a refund, but that's that you should still contact the VA because things are always changing in that perspective. Now, second thing we're going to talk about is actual VA disability compensation as income to help you qualify for a home loan. Now, the cool part about this is that income can be used right away to qualify you. Not only that, lenders do gross it up by 25%. VA loans primarily look at residual income or depending if it's what's called a manual underwrite and check out my videos on my channel. We do a whole bunch of videos around VA home loans and disability stuff. The lenders look at primarily residual income, which is your net income. They factor in 14 cents per square foot for utilities. They take out all your credit liabilities to see what your net amount required to purchase a property. Now, full disclosure, the VA's residual income is very low and this is why you have to budget yourself for home ownership because lenders can qualify you for a lot more than you may be comfortable for, but it doesn't mean that you need to go that high. Now, with having a rating, it helps you bump up for a higher price point if that's something that you're looking for. It is a factor to consider. Now, remember this also, VA disability compensation can be used by a surviving spouse if they're receiving indemnity compensation. Again, this is going to be used to income on a VA loan and actually no matter what type of loan that you want to qualify for, VA disability is income and typically it will be grossed up because it's not being taxed to give you that little extra. Now, the third thing is if it's still in combination with VA disability with your regular income gives you a higher overall purchasing power. So if you have a W-2 job, you could tack this VA disability onto it and again, you might be looking at some property tax breaks, which we're going to cover next because all of this is going to be factored into that. Now, when it comes to W-2 income, it's pretty straightforward, but again, never disqualify yourself. It's something we'll always say on the channel is always reach out and feel free to reach out to me. Again, happy to walk you through that combination of where you need to be in order to figure out that piece for homeownership. The W-2 income is pretty straightforward. Typically, they're looking for two years, but there's many exceptions to that with the VA home loan. If you could be going to school and then go right into a full-time job, that's acceptable. If you're self-employed, typically it's two years. They do make an exception with one year, but again, that is definitely a case-by-case basis. If you're self-employed and you went to W-2, that income you can use right away. Other incomes that you can use for qualification is Social Security and pension. Now, note if you're working part-time, it does require two years of that income in order to be able to use it. That is something that you want to be able to factor in because sometimes people will be like, well, I've been working my part-time job or I just switched to part-time and I want to buy a home, but it's not exactly that easy. Another thing that people get wrong, also a misconception I would say, is that using BEH from your GI Bill to qualify, you won't be able to use that money in order to qualify for a VA home loan. Now, you can use it towards assets and reserves. If you're really good at saving, that is going to be a big factor. Fourth thing we're talking about, real estate tax breaks. Now, these tax breaks vary widely. It should resonate because we do have a people call in that automatically assume that because they have 100% P&T that they will get a property tax break. It is 100% not the case. I cannot stress it enough. You must check with the county assessor's office in the state that you're buying because the rules are very different depending on where you're buying. They can base it on what's your percentage and the status of it. Being 100% or 100% P&T or being 100% TDIU, those are three different qualifiers, and some may take them, some may not. On top of that, you could be, let's say, 100% permanent in total. You have the best case scenario for disability, but you may have not gotten an honorable discharge. You may have gotten a general discharge. Well, then you may not qualify for those property tax breaks. Again, this is why you have to check with the county. Not only do you want to call them, you want to confirm it on the website to make sure that you're getting information that's 100% accurate. If it's not in writing, they can say, well, we didn't see that. Another part is going to be a value of a property. Sometimes they may have a cap of, I'll give you, some counties will be like, oh, you're maxed at a million dollar value plus five acres on a property. Basically, if you have a property worth more than that, you may get no tax breaks at all, or you might get a difference of that. Again, big difference in your taxes, and that's why you need to check. Other times, they'll also have income limits that you can only make so much money before you can not be eligible for it. And I'll give you an example. From a HUD's perspective, recently they changed VA disability doesn't count as income, but that's not what states are doing because obviously they want to be able to save some money, personal opinion. So they're using that as regular income. So your disability income plus your regular job can put you over the threshold for any exemptions. Again, check it. Surviving spouses are also able to use the property tax waiver if all the criteria is met. And again, this is why you need to factor this into your home buying purchase because property taxes in some areas are pretty high and it can be the difference of being able to afford something and not afford something. Especially like an area where I live right now, taxes are out of this world, even if you're buying low price point properties, but having that exemption gives you a lot more power. And I have a whole video in my, on my channel explaining how to actually search it with search engines. I'm getting all the specifics that you need. Now, the fifth thing we're going to be covering, which is the final thing is going to be, what are you going to do with your back pay? How do you set up your savings and your budget? Because this is by far one of the biggest factors in home ownership, right? There's really two parts to any type of loan, any type of loan. It's going to be eligibility, right? For in VA loans, it's going to be, do you meet the time and service and character of discharge, right? So if you have that piece, which most veterans have that part, it's the qualification that causes the issue. And that's where veterans are not able to use a VA home loan. And I'll tell you that again, everyone's financial picture is very different. No matter if you have the same incomes because your spending habits are going to be different, right? You need to take control of your financial picture. Don't disqualify yourself. You can always schedule a call with me. Again, I can walk you guys through that piece, but this is what you typically will need in order to get to that. So one, you got to have to create a budget. First thing you want to do is you want to do annual credit report.com is where you want to go to, to be able to pull your credit report. And you can do it once a year for free, but then it's going to give you all the information that you need. So you're successful in determining what's actually on your, on your credit report. Okay. So the other thing is that you want to also, I recommend credit monitoring as well. So if there's changes in your credit report, you get notified right away. This is why I think it's great to have auto pay as well, but you want to be checking all those bills every month. And you're like, for me, I aligned all my stuff for the beginning of the month. So then I just pay all the bills in one shot and I have nothing to worry about. I can verify it in two, three days once everything's been cleared. So that way you're not going to get any late payments because one late easily drop your course 70 points or more lifetime to build. And it just takes one event for it to kind of derail. But again, it does come back as long as it's like an isolated incident on that. And now when you're not looking at your credit, make sure you guys freeze your credit report. Just another good tip, just so you avoid any type of identity theft. And this is not a fun process, but it is definitely necessary. And this is the thing that stops most people from buying homes because they look at, they don't look at their budget, they overspend, and then they could actually be saving every month towards either paying off their bills, getting themselves in a better financial position or putting money aside. Right? So this is why the whole financial and credit report piece is so important. So now you've gotten your credit report, make sure that you print out your credit report. So you have a copy of it. I'm a fan of manually printing everything out because then you can go through each piece one by one and just really understand what you are looking at and spending time on. You have to print all your statements for your mortgage, installment, credit cards, anything that you get a statement on, you want to print it out, your tax or utilities. You want to be able to print it a credit card statements. You want to see, we want to go through it. How much interest are you paying? And then also lately I've been doing, they may have doing it for a while, but I've noticed it recently is they'll actually say, if you make the minimum payment, how much it's actually going to cost you to pay back, which is also insane amount. Okay. Manual is the way to go on this. There's plenty of apps that are out there, but I think they make it a little too easy where you're not fully aware of what, how much money you are paying. Now you can take out an Excel sheet. You can write it down on a piece of paper. You want to be able to basically put down your current financial picture, right? What is the name of the creditor available credit, what your current balance is, what the interest rate is. And if it's an installment loan, you want to put, what are the remaining months that you have? Okay. Once you have that financial picture of, Hey, these are all my liabilities. There's other things that go into it. One, you got to analyze your income, right? And your spending. So you want to gather your most recent pay stub and you need to figure out what your net income is, not what your gross is. Your net income is what we're always working with. Uh, because people, you know, lately have been saying like, well, my net income is this. Do I qualify for a home? Well, remember from a lending side, we're looking at it both from a VA loan, specifically residual income, uh, and debt to income is going to be in combination of that, but primarily residual on Now you're going to take out and list what your income is. And then you're going to list out all your expenses underneath that in a negative format. If you're using Excel, right? Otherwise you put parentheses on it. You're manually doing it and you're subtracting out all the different liabilities that you have on a monthly basis, right? Now, some things are going to be in categories. You may not know, right? So, or offhand, you may not know like things like what your groceries are, what do utilities cost gas costs, right? Uh, especially also for driving, because that can fluctuate based on if you're going places or not. And again, this is why we see people will keep going higher, higher on credit card bills without bringing them down because they're not managing the money that they do have. Uh, they're loading it up to credit cards as in something that's supposed to be a short-term loan into long-term loans. Okay. So if you have your net income and then you have your monthly liabilities, both fixed liabilities, and then your variable liabilities, which you can technically take most variable, you know, variable costs into a segment of spending, right? If you have, let's say my groceries, by the way, have lately been is out of this world. I've looked at my bill recently. I'm like, man, this is getting crazy. But, um, let's say you budget, I don't know, $200 a week for groceries. Well, you want to be able to also track that, right? And this is where I think having credit cards is great where you can say, I want one credit card for groceries, one credit card for gas, one credit card for, Hey, I'm going out. Like that's what I do. Cause I like it that way. That way I can just look at the bill and be like, all right, I know how much money I'm spending in each category. It's within my budget or Hey, you know, we're under budget. Hey, we could put some more money towards savings, right? This is why tracking that spending is so important because the tracking, the spending right off the bat is a little bit tough because you really have to go back through each of your credit card statements or your, let's say use a debit card. I need to categorize each of those things. But after you've done that the first time, which is the most painful part after that, it becomes a lot easier because you're tracking it on a daily, I would say on a daily or weekly basis. And it's definitely a mindset when it comes to doing this, right? Some people may start and then they're like, ah, this is too hard. This is too much, but that's the difference between people that get into home ownership and people that keep pushing it off and values continue to go higher. So all things to focus on. And then also you want to be able to come up with a plan for paying off debt. Next thing is talking about is back pay. And again, this is going to depend on your financial picture and depending on how much back pay you get and what your current liabilities look like. So you, before you go off and pay off your debt, cause you got a bunch of money, analyze your budget and your credit report. Cause if you're sitting maybe on interest free, uh, let's say credit card debt, you might be able to take that money. Again, not a financial advisor, but this is like me personally, right? Maybe throw that money in a CD. You will earn some interest on it. So your money can make money. You got to be smart about this. You got to, you, you come into a fork in the road essentially because this can set you up for success. We've seen people drastically improve their credit scores, their overall financial picture, put themselves into home ownership because of this decisions that they have made. Okay. Now you can reach out to a different, there's a lot of nonprofit organizations that exist that help with budgeting. Uh, there's HUD consultants, there's plenty of services that are out there that can take you to the next level. Now, if you guys are interested, again, you guys can always schedule a call with me. I'm happy to review this with you because it empowers you. It's financial freedom and it doesn't take that long, right? You spend one afternoon, I promise you one afternoon on the weekend and just sit down and just knock it out. Print everything out, maybe go to a library, print out all the stuff that you need, but you have everything. You can go through it manually. It sets in mentally to see like, this is where I am at. And that will set you free to become a homeowner. And again, that journey, no matter, it's never too early to start, but it can be too late to start. Okay. Because if it, if you're in a position where you need to buy a place for whatever reason and you're not financially there, nothing's going to happen, but the sooner the better. So make sure you guys hit that like and subscribe button. And I'll catch you guys soon.