Lenders treat VA disability compensation as some of the steadiest income a buyer can bring. It arrives every month from the federal government, no income tax or Social Security tax comes out of it, and the same award that pays you erases the VA funding fee. Florida adds property tax breaks tied to the disability rating.
How each program counts it
| Program | How compensation counts |
|---|---|
| VA | In full. For the debt ratio, the lender can gross up tax-free income using current tax tables. Residual income uses the amount you actually receive. |
| FHA | Grossed up 15% |
| Conventional | Grossed up 25%. Fannie Mae doesn't require proof that VA long-term disability benefits will continue. |
| USDA | Counted for repayment, with 29% housing and 41% total ratios |
The lender documents the income with your VA benefit summary letter, the award letter showing your monthly amount, plus a bank statement showing the deposits. Fannie Mae also looks for evidence that you'll receive at least one payment on or before the first mortgage payment is due. No minimum history is required, so a newly awarded rating counts as soon as the payments start.
The funding fee you don't pay
On a first-use VA purchase, the funding fee is 2.15% of the loan with less than 5% down, 1.5% with 5% down and 1.25% with 10% down. VA waives it when you:
- receive VA compensation for a service-connected disability
- are eligible for compensation but receive retirement or active-duty pay instead
- are a surviving spouse receiving Dependency and Indemnity Compensation
- are a service member with a proposed or memorandum rating issued before closing
- are on active duty and received a Purple Heart
On a $330,000 home with $0 down, the waiver keeps $7,095 off the loan and $41.40 a month off the principal and interest payment.
A worked example
Darnell is an Army veteran who receives $2,100 a month in disability compensation and earns $3,600 a month as an equipment technician. He's married with one child, a household of three. His car and card payments total $350. He's buying a 1,500-square-foot single-family home for $330,000 with a VA loan, $0 down and no funding fee, at a 5.75% rate, with property tax at 0.95% of the price a year (the high end of the 0.74% to 0.95% range QualRate uses for Florida) and insurance of $283 a month.
| Line | Monthly |
|---|---|
| Gross income ($3,600 wages plus $2,100 compensation) | $5,700.00 |
| Federal income tax withheld from wages | $60.00 out |
| Social Security and Medicare (7.65% of wages only) | $275.40 out |
| House payment ($1,925.79 principal and interest, $261.25 taxes, $283.00 insurance) | $2,470.04 out |
| Car and card payments | $350.00 out |
| Maintenance and utilities (1,500 × $0.14) | $210.00 out |
| Residual income | $2,334.56 |
His debt-to-income ratio on the income he receives is $2,820.04 divided by $5,700, or 49.5%. That's above VA's 41% guideline, so VA wants residual income at least 20% above the South region table, which is $889 for a household of three: $889 × 1.2 = $1,066.80. Darnell has $2,334.56, more than double the bar. Grossing up his tax-free compensation for the ratio pulls the 49.5% lower still.
Florida property tax breaks for disabled veterans
Florida's Department of Revenue lists three benefits that cut the tax line in a payment like Darnell's:
- 10% or higher disability rating: an exemption that takes a set amount off the assessed value of a qualifying Florida veteran's home.
- Total and permanent service-connected disability: a full exemption from property taxes on the homestead. For Darnell, that would erase the $261.25 a month.
- Age 65 and older with a combat-related permanent disability: a discount on assessed value equal to the VA disability percentage, for an honorably discharged veteran who meets the department's other conditions.
These stack with Florida's regular homestead exemption, and the county property appraiser approves them after you file.
If the numbers come up short
- Put your spouse on the loan. VA allows a spouse as co-borrower even when the spouse isn't a veteran, and both incomes count.
- Pay off a monthly debt. On a VA loan, every dollar of debt removed adds a dollar of residual income.
- Ask the seller to pay closing costs. VA lets the seller cover your closing costs, and the funding fee you aren't paying is one less cost to cover.
- Use FHA with the gross-up. When your VA entitlement is tied up in another home, FHA counts your compensation at 115% and allows 56.9% total debt with an automated approval.
Enter your compensation and wages in the QualRate calculator to see VA, FHA and Conventional prices side by side. To have your residual income figured on a real home, call AAA Capital Funding at 888-601-8344 with your VA benefit letter handy.