Marijuana Income vs. VA Home Loan Approval
In an era where many states have legalized the manufacture and sale of both recreational and medical marijuana, some veterans may find themselves considering job opportunities at cannabis dispensaries or cultivation centers.
But marijuana is still illegal at the federal level, which brings complications for the industry and its employees. Can a military veteran lose out on VA home loan benefits if their primary source of income is marijuana-related?
Why is this a concern? Much has to do with the regulations of government-backed mortgage loan programs like FHA Loans and the VA Loan benefit.
VA Home Loan Approvals Require Income Verification
VA loans, like FHA mortgages and USDA home loans, require the lender to verify income to approve the loan.
- Not all income is considered verifiable for loan approval purposes. A good example is the money you might earn selling items on Etsy or eBay. These sales don’t typically qualify as steady or reliable income.
- Another type of income that is not verifiable? Money earned from illegal activities. The lender typically cannot legally use such income to approve a mortgage.
- Because cannabis is illegal at the federal level, some financial institutions may decide that income earned from the cannabis industry cannot be used to qualify for the loan even if the job is legal within state lines.
But it should be pointed out that this is a call made by the lender, who has to decide whether to count the cannabis income. And there are nuances to consider, including the fact that some cannabis grow operations are actually permitted federally on a limited basis. What kinds? Those using the male plants that make hemp having little to no psychoactive compounds such as THC.
A lender has no resistance from the federal government for approving a VA mortgage using such hemp farm income to qualify. Even though hemp is technically a cannabis product, it is not a controlled substance. But will the lender feel the same way about income from a dispensary?
Read more: VA Loans Fact and Fiction
VA Loan Rules for Cannabis Income
The Department of Veterans Affairs issued a VA Memo discussing the official policy for “cannabis-derived income,” which includes the following guidance for VA lenders:
“Because marijuana remains illegal at the federal level and Congress has not provided special exceptions for Veterans hoping to use their VA home loan benefits, it may be difficult for lenders to establish the stability and reliability of Veterans’ income derived from marijuana-related industries.”
VA Loan Eligibility Versus VA Loan Approval
The key to understanding the VA position here may lie in the following carefully-worded statement from the VA Memo:
“A Veteran who receives income from state-legalized marijuana activity is not prohibited from obtaining a Certificate of Eligibility (COE), which is a certificate that confirms the Veteran is eligible to apply for a VA-guaranteed loan and shows the amount of home loan guaranty entitlement available, if any, to the Veteran.”
Read more: The VA Loan Certificate of Eligibility
Note that the VA does not imply that a veteran will have their loan APPROVED, just that earning money from the cannabis industry does not automatically cancel your ability to apply for a VA Certificate of Eligibility, which shows the lender the veteran’s VA loan entitlement, how much remains, and whether the veteran is eligible to apply for a new VA mortgage or not.
Read more: What do you Need to Know About VA Loans?
VA Loan Approval Difficulties
In the Memo, we also learn, “…income derived from the retail sale of legally compliant hemp fabric would not raise the same underwriting difficulties that income derived from the retail sale of marijuana would.”
Furthermore, the VA notes that a participating VA lender could “treat such hemp-related income like any other source of legal income when determining a Veteran’s ability to meet loan payments.”
The Department of Veterans Affairs has adopted a wait-and-see approach to marijuana and federal policy regarding VA loan eligibility and approval.
When changes in federal law go into effect regarding marijuana’s inclusion on the federal schedule of controlled substances, the VA will likely update its policies in this area to match. Until then, cannabis remains illegal under federal law and the question marks about VA loan approval remain.
About the author
Joe Wallace is a 13-year veteran of the United States Air Force and a former reporter/editor for Air Force Television News and the Pentagon Channel. His freelance work includes contract work for Motorola, VALoans.com, and Credit Karma. He is co-founder of Dim Art House in Springfield, Illinois, and spends his non-writing time as an abstract painter, independent publisher, and occasional filmmaker.