How Retired Military Can Qualify for a VA Loan With Retirement Income

Retirement is an exciting new chapter in life. For Veteran homebuyers, using retirement income is one way to qualify for a VA loan.

VA loans offer unique benefits such as no down payment and no private mortgage insurance, making them an attractive option for many Veterans, even after retirement.

Let’s explore the ins and outs of using retirement income to qualify for a VA loan and the factors to consider when deciding if a VA loan is the right option for you.

VA Home Loans for Military Retirees

Military members preparing to retire from service may be able to count their pending retirement income toward loan qualification, even before their retirement fully takes effect.

Lenders may be able to verify the rate of pay with a signed statement from the service member’s commanding officer or through a Defense Department retirement income calculator. You would qualify based on the lesser of either your current full-time income or your retirement income.

In addition, you may need cash reserves available, depending on the length of time between your last full-time paycheck and your first retirement payment. Lenders may have a limit for how many days they’ll allow counting pending retirement income.

The above is generally true for Veterans who are retiring from their civilian careers. Income verification is about assessing your risk as a borrower and making sure you can afford monthly mortgage payments.

Using Retirement Income for a VA Loan

Qualifying for a VA loan in retirement is possible through several types of income and financial resources. Lenders typically look for stable and reliable income. Here’s how retirement income, savings, and other sources can help Veterans qualify.

Verifying Retirement and Social Security Income

Retirement income, such as pensions and Social Security, can be counted toward a VA loan if it’s expected to continue. Generally, VA lenders need to verify the retirement income through the following process:

• Your retirement income must be expected to continue for at least three years
• You provide two of the following documents:
  • A copy of your retirement or pension award letter dated for the year of usage
  • Proof of current receipt of retirement income (such as a bank statement)
  • Your most recent IRS Form 1099

Lenders can also consider Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI) when calculating eligibility.

• For benefits received on behalf of a minor dependent: The income must be documented to continue for at least three years, and the dependent must be 14 years old or younger at the time of closing.
• For benefits received on behalf of an adult dependent: The borrowers must provide documentation proving the income beneficiary's legal conservatorship or guardianship.

Verifying Retirement Savings Accounts

Retirement savings such as IRAs, 401(k)s or TSP accounts may also be used if they can reasonably provide income over time. To count these assets, the account must:

• Be an IRS-recognized retirement account
• Allow withdrawals without penalty
• Include a 30-day or 60-day account statement
• Show enough funds to provide income for at least three years

Qualifying for a VA loan with retirement savings can be useful for Veterans who may not have a pension or steady Social Security benefits.

Other Forms of Income

Utilizing your retirement income or savings isn’t the only way to finance a VA loan after retirement. Note that VA loan income guidelines are discretionary and evaluated on a case-by-case basis.

As mentioned, the key to evaluating income is that it’s consistent and verifiable. Beyond using your pension or savings, there are a variety of income streams to choose from.

Disability Income

Some Veterans are eligible to receive VA disability pay for service-connected disabilities. The VA recognizes disability pay as a verifiable income source that you can use towards a VA loan.

Part-Time Employment

Consistent, part-time income can count towards your overall monthly income even if you are retired.

Rental Income

Income earned through renting out a room or owning and renting out a property is verifiable income according to the VA. Learn more about how VA loans work with investment properties.

Household Income

If you have a child or other person living with you long-term, VA lenders typically can’t count their income for qualification. However, their income can potentially offset your residual income.

Spousal Benefits

A non-working spouse, or one who earned less during their career, may be able to receive 50% of the Veteran’s Social Security benefits once they are filed and can be counted towards income.

Required Minimum Distributions (RMDs)

Some retirees with IRAs or 401(k)s may be required to draw distributions. These can count towards monthly income if they are documented correctly.

Retirement Funds as Reserves

Another way retirement funds can come into play is if you need to make a down payment or come up with cash reserves. While most VA loans don’t require a down payment, lenders may need to see additional reserves or upfront funds in certain situations.

If you’re entitled to a pension but are still working, lenders may need to confirm that the funds are accessible before retirement. Many pension plans can only be drawn upon once you retire, leave your job, or in the event of death.

Accessing money from accounts such as a 401(k) is often easier, though early withdrawals can come with financial penalties. Borrowers who tap into retirement income for a down payment will need to document the deposit.

Remember that guidelines and policies on using retirement income vary by lender. If you’re planning for retirement, or already living off your retirement income, a Veterans United VA loan expert can review your situation at 855-870-8845 to help determine your best path toward homeownership and maximize your benefits.

FAQs About Retirement Income and VA Loans

Do VA Loans Have an Age Limit?

No, there’s no age restriction on VA loan eligibility. However, you can apply only if your income is stable and verifiable.

Can I Use My Spouse’s Retirement or Social Security Income to Qualify?

Yes, spousal income can be counted toward your household income if your spouse is a co-borrower on the loan. Adding your spouse’s income may strengthen your qualifying profile if it helps boost your debt-to-income (DTI) ratio.

Keep in mind that if your spouse has significant debts, those obligations will also be factored in, which could offset the benefit of including their income.

Can I Refinance With a VA Loan After Retirement?

Yes, retirees can use a VA loan to refinance, including the VA IRRRL program. You may qualify as long as your retirement income is stable and verifiable.