Can I use my VA disability income to qualify for a mortgage?
By Kyle Melvin · NMLS #1486450 · REV Mortgage ·
Short answer
Yes. VA disability compensation is stable, non-taxable income and lenders count it in full toward qualifying, and because it is not taxed most lenders gross it up — add a percentage to reflect its after-tax value. A compensable rating also exempts you from the VA funding fee. The lender documents it with your VA award letter and a recent benefit statement; a rating marked temporary may be treated differently from a permanent one.
Chapter 4 of the VA Lenders Handbook treats VA compensation like any other verified, continuing income, with one advantage: it is not taxed, and the Handbook permits lenders to gross up non-taxable income for the debt-to-income calculation. The same gross-up applies to BAH and BAS, described on the BAH page.
What the lender documents:
- The VA award letter showing the rating percentage and monthly amount, downloadable from VA.gov.
- A recent benefit statement or bank statements showing the deposits.
- Continuity. A permanent-and-total rating needs nothing more. A temporary rating or a future re-examination date may prompt the lender to ask for more history; most still count the income.
Two things follow from the rating that matter as much as the income. First, any compensable rating exempts you from the funding fee, which is confirmed on your Certificate of Eligibility — if the COE does not say exempt, fix it before closing. Second, a 100% rating opens the state property tax exemptions described on the state benefits pages, which reduce the payment after closing rather than the qualification before it. The residual income test also benefits: non-taxable income has no taxes deducted, so more of it counts as residual.
Questions people also ask
- Does the lender need my rating to be permanent?
- Lenders need the income to be likely to continue. A permanent rating is straightforward; a temporary rating or a scheduled re-examination may need more documentation, though most lenders still count it.
- Do I need a job too?
- Not necessarily. If disability compensation, retirement pay or other continuing income covers the qualifying ratios and residual income, no employment income is required.
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