Thank you for you service and for submitting your question. If you are self-employed, you typically need a two year work history to qualify for a VA loan as documented by your tax returns. A self-employed work history of between one and two years may be permitted in certain cases if you previously worked in a similar field or received specialized training in that industry.
For example, if you worked for a company and then start your own business in the same line of work and have at least a year of self-employed work history, then you may be eligible for a VA mortgage. In most cases, however, you need to be self-employed for two full years to qualify for a VA loan.
When you apply for a VA mortgage as a self-employed applicant, in most cases the lender averages your annual income according to the Schedule C of your personal tax returns for the prior two years to determine the mortgage you qualify for. For example, if you earned $50,000 in self-employed income in the most recent calendar year and $40,000 in income the prior year, the lender adds the two annual income figures together -- so $90,000 in this example -- and divides by 24 months to calculate your monthly gross income, so $3,750 in this case ($90,000 / 24 months = $3,750).
Use ourVA MORTGAGE QUALIFICATION CALCULATORto determine the loan you can afford
In addition to your self-employment income, the mortgage you qualify for depends on your monthly debt expenses, loan terms and other factors. In short, the higher your monthly gross income and lower your debt payments, the higher the mortgage amount you can afford, regardless of your type of employment.
The table below shows VA mortgage rates and closing costs for leading lenders in your area. We recommend that you contact multiple lenders to understand your ability to qualify as a self-employed borrower and to find the best loan terms.
It is important to highlight that VA loan qualification requirements for self-employed applicants are relatively rigid. There are other programs that may apply more flexible qualification guidelines although these programs may not offer all of the benefits of a VA mortgage.
For example, you can qualify for an FHA mortgage with a self-employed work history of one-to-two years if you worked in a similar industry for one year and have one year of training or education in that field. While these guidelines are similar to the VA program, FHA qualification requirements are generally more lenient.
For example, the minimum credit score required to qualify for an FHA mortgage is only 500 if your down payment is at least 10% and 580 if you make a down payment between 3.5% and 10% of the property purchase price. Although technically the VA program does not apply a minimum credit score, most lenders require a score of at least 620, which is higher than the FHA program.
Additionally, FHA mortgage guidelines permit a higher debt-to-income ratio, which enables you to qualify for a higher loan amount. In short, with an FHA loan you can spend more of your income on your monthly payment and other debt expenses which increases the mortgage you qualify for.
Use ourFHA MORTGAGE QUALIFICATION CALCULATORto determine the FHA loan you can afford
The main downside to an FHA mortgage is that you are required to make a down payment of at least 3.5% as compared to the VA program which enables you to buy a home with no money down. The FHA program also requires you to pay an upfront and monthly mortgage insurance premium fee as opposed to a VA loan which only require you to pay a one-time VA funding fee.
The good news is that mortgage rates for both FHA and VA loans are usually lower than for conventional mortgages because the programs are backed by the government. The lower your mortgage rate, the lower your monthly payment and total interest expense over the life of your loan.
The table below shows FHA loan terms for lenders in your area. We recommend that you compare the rates, fees and monthly payments and qualification requirements for both VA and FHA loans to determine the option that is right for you as a self-employed applicant.
"Chapter 4.2.j. Self Employment Income Analysis Guideline." Lenders Handbook - VA Pamphlet 26-7. U.S. Department of Veterans Affairs, 2020. Web.
"II.A.4.c.x. Self-Employment Income (TOTAL)." FHA Single Family Housing Policy Handbook 4000.1. Federal Housing Administration, January 2 2020. Web.
Review our comprehensive VA Mortgage Guide to learn more about program eligibility guidelines and qualification requirements
Our in-depth FHA Mortgage Guide offers helpful information on a wide range of topics including qualification guidelines, loan limits and FHA mortgage insurance fees