You're ETS is less than 12 months and you want to buy a home using your VA Loan

 

VA Loans and the “12-Month Purgatory” Myth: How One Veteran Turned a No into a Clear to Close

Every week, I talk to service members who are planning a big transition: retirement or separation from the military and a move “back home.”  

Recently, a veteran came to a loan officer after being denied by multiple lenders. He was:

  • Still on active duty

  • Within 12 months of retiring

  • Relocating back home to Ohio

  • Sitting on a strong amount of savings for a down payment

Most lenders gave him the same answer:

“You’re in a kind of purgatory. We can’t use your active-duty income because you’re getting out, and you’re too far away from retirement or a civilian job to count that, either.”

Even the loan officer in this story initially pivoted to a conventional investment property idea—not a VA loan—because that’s what they’d always been told.

Then one phone call and one paragraph in the VA Lender’s Handbook changed everything.

The Guideline That Changes the Game: Chapter 4, Topic 2, Subsection K

The “aha” moment came when a seasoned VA expert said:

“Go to Chapter 4, Topic 2, Subsection K.”

That section of the VA Lender’s Handbook deals with Active Military Borrower’s Income. It lays out what underwriters must do when a borrower is:

  • On active duty, and

  • Within 12 months of their ETS / separation date. Benefits

Here’s what the Handbook requires when closing is within 12 months of release from active duty or the end of a contract term: the file must include one or more of the following: Benefits

  • Documentation that the servicemember has already re-enlisted or extended beyond 12 months after closing, or

  • Verification of a valid offer of civilian employment and/or military retirement income that will start after separation, or

  • A signed statement that the borrower intends to re-enlist plus a confirming statement from the commanding officer that:

    • The servicemember is eligible to re-enlist, and

    • There’s no reason to believe re-enlistment will be denied, or

  • “Other unusually strong positive underwriting factors” such as:

    • At least 10% down payment from the borrower’s own assets (not a gift), and

    • At least 6 months of PITI (principal, interest, taxes, insurance) left in cash reserves after closing, and/or

    • Strong ties to the community and a non-military spouse whose income is high enough that only a small portion of the active-duty income is needed to qualify. Benefits

Then the last part—what blew that loan officer’s mind—tells underwriters how to think about this situation:

  • Base pay is considered stable and reliable unless the borrower is within 12 months of release.

  • If the borrower will not re-enlist, the lender must decide whether:

    • The anticipated source of income (retirement, disability, or civilian job) is stable and reliable, and/or

    • Those unusually strong positive factors are enough to offset the unknowns. Benefits

Put simply:

VA does not say “automatic denial” just because you’re within 12 months of getting out.

VA tells lenders to use judgment, common sense, and flexibility and to underwrite case-by-case when assessing income stability. Benefits

How This Veteran Went from “No Way” to Clear to Close

Once the loan officer actually read that subsection and talked it through with their AE, everything changed.

Instead of:

  • “You’re in purgatory, we can’t use your income,”

they realized they could build a solid VA file around:

  • His current active-duty income (with a clear ETS date)

  • His retirement timeline

  • His strong assets for a sizeable down payment

  • His cash reserves after closing

By following Chapter 4, Topic 2, Subsection K to the letter and documenting the compensating factors, the underwriter was able to treat this as a strong VA loan, not an automatic decline. Benefits

Result?

They received a Clear to Close (CTC) for an active-duty member who was out-processing in less than 12 months—after several other lenders had already said no.

Why So Many Lenders Still Miss This

There are two big reasons:

  • Over-simplified rules of thumb.
    A lot of people are taught: “If they’re within 12 months of ETS and don’t have a firm job or final retirement letter in hand, it’s a no.” That’s not what VA says.

  • Not living in the handbook.
    VA loans are a benefit program, and the rules live in VA Pamphlet 26-7 (the Lender’s Handbook), updated regularly through VA’s Web Automated Reference Material System (WARMS) and newer systems like KnowVA. Benefits+1

VA expects lenders to:

  • Develop all credit information,

  • Obtain the required verifications, and

  • Ensure the accuracy of the information used for the decision. Benefits

When that doesn’t happen—and guidelines are replaced with “rules of thumb”—veterans get declined when they might actually qualify.

If You’re 6–12 Months from Retirement or Separation, Here’s What to Do

If you’re on active duty and planning to buy a home near your transition date, there are smart moves you can make now:

  • Get your Certificate of Eligibility (COE) squared away early.
    VA explains eligibility and COEs on its official site. Veterans Affairs+1

  • Talk to a lender who lives in the VA handbook.
    Ask directly how they treat borrowers within 12 months of ETS under Chapter 4, Topic 2, Subsection K.

  • Gather your documentation:

    • Most recent LES

    • Any retirement orders or documentation if your retirement date is set

    • Any civilian job offers, contracts, or written employment letters

    • Statements showing your savings and reserves

  • Strengthen your “positive factors” where you can:

    • Increase your own-funds down payment

    • Build up cash reserves so you have several months of PITI in the bank

    • Keep revolving debt low and avoid new unnecessary obligations

  • Coordinate timing and occupancy.
    VA still requires that you intend to occupy the home as your personal residence, even as you move from active duty into civilian or retired life. Veterans Affairs+1

What This Means for Realtors Working with Military Buyers

If you serve a market with a strong military presence, this scenario matters a lot.

When you hear:

  • “My buyer is retiring in 8–10 months,” or

  • “They’re PCSing and then getting out shortly after,”

that is not an automatic reason to:

  • Assume they can’t use a VA loan

  • Push them into a non-VA product with a big down payment and mortgage insurance, or

  • Move on to the “easier” buyer

Instead:

  • Encourage them to talk with a VA-savvy lender who understands Chapter 4, Topic 2, Subsection K.

  • Help them gather documentation early (LES, retirement paperwork, job offers).

  • Understand that strong assets, reserves, and spouse income can be part of a compensating-factor story — not just “nice to have,” but specifically contemplated by VA. Benefits

The Bigger Lesson: VA Loans Reward the Veteran Who Persists

The loan officer in this story had been in the business for years and thought they “knew VA.”

Reading one paragraph in the VA Lender’s Handbook changed their understanding—and a veteran’s life.

VA itself reminds lenders that income analysis is not an exact science, and that they should underwrite each loan using judgment, common sense, and flexibility where warranted. Benefits

For veterans and military families, the takeaway is simple:

  • If you’re told “no” because of your transition timing,

  • And nobody mentions Chapter 4, Topic 2, Subsection K or the options it provides,

…it may be time to get a second opinion from someone who lives and breathes VA guidelines.

Your VA home loan benefit is earned. The rules are there to protect you and to give you a fair shot at homeownership—even in that tricky 12-month window between active duty and civilian life.

If you’d like help mapping this to your specific situation — primary home, second home, or building an Airbnb portfolio — the next step is to sit down with a loan officer who understands both mortgage guidelines and the short-term rental world.  Let's talk!

About Between Two Doors

Between Two Doors is a podcast where I talk with Realtors about their journey, aiming to connect home buyers and sellers with agents on a more personal level. I ask "right brain" questions that go beyond transactions, focusing on the experiences, values, and passions that make these professionals great at what they do.

Listen to more episodes at: https://www.betweentwodoors.com

Sponsored by:
Premier Lending, Inc.
https://www.natecarver.com

NMLS Numbers:
NMLS: 2004738
Licensed by the Department of Financial Protection and Innovation (DFPI). Equal Housing Opportunity.
https://www.nmlsconsumeraccess.com

📞 Contact: 972-832-5761

Follow Us on Social Media:
Facebook: https://www.facebook.com/NateCarverTheMortgageGuy/
LinkedIn: https://www.linkedin.com/in/natecarver/
Twitter: https://twitter.com/NathanC90662223
TikTok: https://www.tiktok.com/@nateyourfavmortgageguy
YouTube: https://www.youtube.com/@betweentwodoors

Comments

Post a Comment

Popular posts from this blog

Between Two Doors: A Conversation with Joe Silzell, Grand Junction Realtor

Image
  Between Two Doors: A Conversation with Joe Silzell, Grand Junction Realtor If you’re looking to buy or sell a home in Grand Junction or Mesa County, Colorado, you need a real estate agent who understands the market, the community, and the needs of buyers and sellers. In this episode of Between Two Doors , I had the pleasure of sitting down with Joe Silzell, a dedicated real estate agent and former U.S. Marine who has built a successful career in real estate. From Marine to Realtor: Joe’s Unique Journey Joe’s path to real estate wasn’t a straight line. After high school, he enlisted in the United States Marine Corps in 2012, serving as an infantry rifleman. He had the opportunity to travel the world, gain discipline and leadership experience, and even be stationed in Hawaii, which he remembers as his favorite duty station. After five years of service, Joe returned to his roots in Grand Junction, Colorado, and began a career in law enforcement as a detention deputy with the Sheriff...
Read more

Meet Ashley Hart: North Texas Real Estate Expert Redefining Real Estate and Resilience

Image
  Meet Ashley Hart: North Texas Real Estate Expert If you’re looking to buy or sell a home in Flower Mound, Texas, or the North Dallas Metroplex , you need to meet Ashley Hart . With a background in marketing and architecture, she has taken the real estate industry by storm, making a name for herself as one of the top 1% of agents in her market. From Marketing to Real Estate: Ashley’s Journey Ashley’s journey into real estate started while she was working as a marketing coordinator for her father’s architecture firm . At the same time, she and her husband were investing in properties. To save on agent commissions, her husband suggested she get her real estate license. Once she started taking classes, she realized real estate was a perfect combination of her skill sets —marketing, customer service, and business management. In March 2019, Ashley earned her real estate license and embarked on her new career. The first year was tough—Ashley had zero clients . But through perseverance,...
Read more

Between Two Doors: A Conversation with Anita Ice on Real Estate in Aledo, Texas

Image
                                  Between Two Doors: A Conversatio n with Anita Ice on Real Estate in Aledo, Texas If you're looking for a knowledgeable and passionate real estate agent in Aledo, Texas, then look no further than Anita Ice. With over 12 years of experience in the industry, Anita has been helping home buyers and sellers navigate the real estate market in Parker County and beyond. On today’s episode of Between Two Doors , we sat down with Anita to talk about her journey into real estate, her love for the Aledo area, and her advice for buyers and sellers alike. A Passion for Real Estate Anita’s journey into real estate was fueled by a long-standing passion for helping people find their dream homes. Though she had always wanted to become a real estate agent, concerns about expenses, licensing requirements, and income stability initially held her back. However, in 2012, she decided to take th...
Read more