Lending Archives - The Mark Smith Team

Buying a House Before ETS: Denied by One Lender, Approved by Another

Mark Smith with a serious, deadpan look about buying a house before ETS — My face when the denial reason isn’t in the handbook.

Yes, buying a house before ETS works with a VA loan. If your ETS is within 12 months of closing, VA wants one more document: a valid civilian job offer for after you separate, or proof you’re staying in. VA doesn’t set a 60-day start window. Two months out with an offer? Good. Ten months? Also good.

Key takeaways

Your current active-duty pay can be used to qualify, even with less than 12 months left.
If you’re getting out, the lender needs a valid offer of civilian employment for after you separate.
A “new job must start within 60 days” rule comes from other loan programs or a lender overlay, not VA.

Why was a Coast Guard family denied for buying a house before ETS?

A Coast Guard member came to me a while back with a file another lender had already turned down. And honestly? He had everything you’d want to see. Steady Coast Guard pay, a wife and kids ready to move in, and a signed, non-contingent job offer in the Dallas area for when he got out. His ETS (expiration of term of service, the day his enlistment is up) was about 10 months away, and the new job started right when it hit.

The other lender’s answer was no. Not because of his income. Not because of his credit. Because the job started too far in the future. He was 10 months away, but so was the new job. And per the other lender, that was too far out.

Back when I underwrote loans, I learned to ask one question about every denial: whose rule is this, exactly?

Mark Smith looking at another lender's denial in shock — Reading that denial from the other lender for the third time.

What does VA actually require when your ETS is less than 12 months away?

Since 1994, I’ve seen a lot of denials from other lenders, and rescued a ton of them, and here’s what I’ve learned: the reason on the denial and the rule in the underwriting guidelines (in this case – the VA Handbook) aren’t always the same thing. So,I went to the source.

VA’s Lender’s Handbook (VA Pamphlet 26-7, Chapter 4) says that when your ETS is within 12 months of closing, the file needs one more piece of the puzzle. If you’re getting out, that’s a valid offer of local civilian employment for after you separate. (If you’re staying in, it’s proof you’ve reenlisted, plus a couple of other options.)

That’s it. His current Coast Guard pay counted. His Dallas job offer, near the house he was buying, answered the 12-month question. And the same chapter tells underwriters to use good judgment and flexibility, because the guidelines can’t cover every situation. (I’d like to frame that line and hang it on a few underwriting walls.)

Does a new job have to start within 60 or 90 days?

Not on a VA loan. Here’s where those numbers come from:

Loan program	Start-date rule for a new job offer
VA	No start window in VA’s guidelines. Within 12 months of ETS, the file needs a valid offer of local civilian employment (or one of VA’s other options).
Conventional (Fannie Mae)	The job must start no earlier than 30 days before or no later than 90 days after the note date (Selling Guide B3-3.3-03) if first paystub isn’t received prior to closing.
FHA	Income from a new job must be guaranteed to begin within 60 days of closing, with enough income or cash reserves to cover the gap (HUD Handbook 4000.1, Expected Income).

Here’s the part most people never hear. VA’s guidelines are pretty quiet about job start dates, and underwriters don’t love quiet. So some lenders fill in the blank with a rule they already know from FHA or conventional. It’s a bit like reffing a football game with the basketball rulebook. The rules are real. They’re just not this game’s rules.

Mark Smith raising one finger as if making an important point. — Always ask: Is this VA’s rule or the lender’s?

What’s a lender overlay, and why does one lender say no when another says yes?

An overlay is a rule a lender adds on top of the official guidelines. Overlays are legal, and lenders use them to manage risk. Some are perfectly reasonable. (Not all!)

But “VA won’t allow it” and “we won’t allow it” are two very different answers. One means the door is closed. The other means you knocked on the wrong door.

So if you get a no, ask one question: “Is that a VA guideline or your company’s overlay?” Any loan officer worth their salt can answer that in about ten seconds.

Can your family move into the house before you separate?

Yes, and this one surprises a lot of military families. Federal law says that when you’re on active duty and can’t live in the house because of it, VA’s occupancy requirement is met if your spouse lives there (or intends to) and signs the occupancy certification. That’s exactly how this one worked. His wife and kids moved in, and he’ll join them as soon as he’s out. (Base housing compared to a backyard of your own? Not a bad trade.)

Mark Smith smiling and giving two thumbs up — Approved, closed, and the family’s home!

What should you do if you’re denied for buying a house before ETS?

Ask whether the denial is VA’s rule or the lender’s overlay. In writing, if you can get it.
Get your job offer in writing: position, pay, start date and no strings attached.
Grab your latest LES and a statement of service from your command.
Get a second opinion from someone who works VA files every week, not once a quarter.

Whether you’re stationed here in Texas or headed home to Austin or San Antonio when you get out, let’s look at your file before you give up on it. Every file is different, and underwriting always makes the final call. But one lender’s “no” isn’t always the last word. Chat with Mark or apply here.

Cheers!

Mark Smith | NMLS #295910 | Gardner Financial Services, LTD., dba Legacy Mutual Mortgage | NMLS #278675 | Equal Housing Lender

FAQ: Buying a House Before ETS

Can I use my active-duty pay to qualify if I’m separating within 12 months?

Yes, in many cases. Your current military pay can be used to qualify. Because your ETS is within 12 months of closing, the file also needs one of VA’s extra items, such as a valid offer of local civilian employment for after you separate. Every file is different, so a full underwriting review makes the final call.

Does my civilian job have to start within 60 days for a VA loan?

Not under VA’s guidelines. VA asks for a valid offer of local civilian employment when your ETS is within 12 months of closing, but it doesn’t set a start window. FHA’s 60-day rule and conventional’s 90-day rule come from those programs. Some lenders apply them to VA loans as an overlay, so ask whose rule it is.

Can Coast Guard members get a VA loan?

Yes. Coast Guard service counts toward VA home loan eligibility, just like the other branches. You’ll need a Certificate of Eligibility, and active-duty members also provide a statement of service. Here’s the cool part: National Guard and Reserve members, Public Health Service officers, NOAA officers, and cadets at West Point, the Air Force Academy and the Coast Guard Academy (plus Naval Academy midshipmen) can be eligible too.

What if I’m reenlisting instead of getting out?

Then the lender needs proof you’re staying in past the 12-month window. That can be documentation that you’ve already reenlisted or extended. VA also accepts your statement that you intend to reenlist, plus a statement from your commanding officer that you’re eligible and there’s no reason to think it won’t be approved.

Last updated: October 12, 2026

Getting a Mortgage While Self-Employed: Why Write-Offs Can Cost You the House

Lending

Mark Smith giving two thumbs down at write-offs that hurt getting a mortgage when self-employed.

Yes, you can get a mortgage while you’re self-employed.

But lenders qualify you on your net income after write-offs, averaged over two years, not on your gross revenue. Every deduction that shrinks your tax bill shrinks your buying power, too. The fix: set aside 25 cents of every dollar for taxes so you’re never tempted to over-deduct.

Since 1994, I’ve sat across from hundreds of self-employed business owners who wanted a home, only to watch the deal fall apart when their tax returns hit my desk. It’s almost always the same two problems. First, the borrower never set money aside for taxes. Then comes the surprise (“I owe HOW much? Please fix that!”), and the CPA or tax preparer gets overly generous with deductions. Both quietly wreck your borrowing power.

No one likes paying the government. (Trust me, I write that check too.) But taxes are the price of making money, and how you handle that bill decides whether you can buy the house you’re working for. The answer isn’t more deductions. It’s a simple 25-cent rule.

Why is a big tax bill good news when you’re buying a home?

I treat a big tax bill like a victory lap. It proves you made money. When you’re self-employed, you’re paying more than income tax. In 2026, self-employment tax adds 12.4% for Social Security on net earnings up to $184,500, plus 2.9% for Medicare on all of it. Employees split that with their boss. You carry the whole thing.

You’re in a higher bracket because you’re succeeding. The only question is whether you planned for the bill.

Mark Smith Looking happy with thumbs up.

Wait. A big tax bill is GOOD news?

How much should you set aside for taxes if you’re self-employed?

At least 25 cents of every dollar of profit is a great starting point. Put it in a separate account before you spend a dime. Net $100,000? Park $25,000. Minimum. For a Texas earner at that level (no state income tax), that usually covers federal income tax and self-employment tax. Higher earners need more, so let your CPA set your real number.

Why a number instead of “save what you can”? Because a number is a boundary. It keeps you out of the two traps I see every week: you can’t pay the bill, or you shrink the numbers so you don’t have to.

How do write-offs hurt getting a mortgage while self-employed?

Here’s the trap. April rolls around and it’s time to file. You hand your tax preparer all your numbers and documents, they run a draft, and then comes the surprise: you owe a LOT of money.

Worse, you didn’t set enough aside to cover it.

So now you need to shrink the bill. You claim every deduction you can find, and the return that comes out the other end shows a lot less income than you actually made. And once you file it, that’s the return a lender has to use.

Lenders don’t qualify you on gross revenue. They generally average two years of net income after deductions. So a self-employed borrower grossing $200,000 but showing $90,000 after deductions can buy less house than a salaried borrower making $100,000.

The good news? Both problems are fixable. Save first, so you never have to scramble. Scrambling is what leads to overly generous deductions or, worse, owing the IRS at the end of the year and setting up a payment plan (also known as a debt, and lenders count it). And if your returns already tell the wrong story, there’s another door.

Mark Smith giving a skeptical sideways look

Underwriters read the fine print. Every line of it.

Which write-offs do lenders add back?

Underwriters know which write-offs are paper and which are real. (I used to be one.) Here’s a simple rule of thumb: if you wrote a check for it, it’s real. If you didn’t, an underwriter will usually add it back to your income.

Depreciation, depletion and amortization are the big ones. No cash left your account, so they come back. (One bonus that works in your favor: on conventional loans, the home office deduction gets added back too.) Marketing, supplies, subscriptions? You wrote the check. That’s real cash, and no lender brings it back.

And meals? Think twice. I mean it. Say you spent $4,000 on business meals. The IRS only lets you deduct half, so your return shows $2,000. But lenders run a real cash flow analysis, and they know you actually wrote checks for $4,000. So they subtract the other $2,000 too. That’s every loan program, not just one.

What if your self-employed income went down?

Watch out here. If your taxable income dropped from one year to the next, pretty much every loan program will use the lower, more recent year instead of the two-year average. And on an FHA loan, a drop of more than 20% also turns your file into a manual underwrite. Squeeze one year’s return to dodge taxes, and you may lock in a low number right when you need a high one. Sonofabiscuit.

Can you get a mortgage while self-employed without using tax returns?

Yes. Non-QM loans, like bank statement loans and P&L loans, look at what your business actually brings in instead of what your tax return says. This is the “second door” I mentioned above.

A bank statement loan calculates your income from 12 or 24 months of business or personal bank deposits. A P&L loan uses a profit and loss statement, usually prepared or verified by your CPA or tax preparer. Either way, your write-offs don’t drag your qualifying income down the same way.

The tradeoff? These loans usually cost more and need a bigger down payment than conventional, FHA or VA loans. Think of one as a bridge, not a forever plan. Once your tax returns tell the right story, refinancing into a traditional loan may be an option.

When should you talk to a lender (me!) if you’re self-employed?

Twelve to eighteen months before you want to buy. Not after you’re already under contract. How you pay yourself, when you buy equipment, what you deduct: once a return is filed, it’s baked into two years of averaging. I can help you build a homebuying plan that actually works.

My honest advice: pay your taxes, keep your deductions honest, and set aside 25 cents of every dollar. A fat tax bill is the receipt for a successful business. Let it get you the house, not keep you out of one. But that only works if the money’s already sitting there when the bill comes.

Different income, same lesson. If you’re in the military and your ETS is less than a year away, here’s what VA actually requires when you’re buying a house before your ETS.

I’m a loan officer, not a CPA, so bring your tax pro in on this. But if you’re self-employed and thinking about buying a home in Austin, grab 15 minutes on my calendar before you file next year’s return. Ready to go? Start your application here.

Cheers!

Mark

Last updated: October 2026

FAQ: Getting a Mortgage when you’re self-employed

How many years of tax returns do I need to get a mortgage while self-employed?

Usually two years of personal and business returns. On conventional loans, one year may be enough. Freddie Mac can allow it if you’ve been self-employed in the same business for at least five years, and Fannie Mae can allow it when its automated underwriting system permits it. FHA generally wants two years, with limited exceptions when you have prior experience in the same line of work.

Does depreciation count as Income for a Mortgage?

Yes. Depreciation is a paper expense, so lenders add it back to your qualifying income. Depletion, amortization and business use of your home get the same treatment. Routine cash expenses like supplies and marketing, insurance, legal expenses don’t. They stay deducted and lower the income a lender can use. Think of it like this: If you write a check for it, it’s a real expense.

How much should I save for taxes if I’m self-employed in Texas?

Start with 25 cents of every dollar of profit, kept in a separate account. Texas has no state income tax, so at moderate income levels that usually covers federal income tax and self-employment tax. Higher earners need more. Your CPA should set your actual percentage and your quarterly estimated payments.

Mark Smith, Senior Loan Officer | NMLS #295910 | Gardner Financial Services, LTD., dba Legacy Mutual Mortgage | NMLS #278675 | Equal Housing Lender

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