Rental income may be used to offset a mortgage liability though. If he wants to buy a home this year, then he will have to provide a signed lease along with cancelled checks for rent. DO NOT EVER give him cash! Always pay via check or money order and have him make copies of all checks received. If he wants to buy NEXT YEAR he will have to file a tax return and report the income on schedule E. He'll need to have all his t's crossed and i's dotted though, because an underwriter may not like that the home is rented to relatives. That may raise some red flags so please be prepared and keep a paper trail of everything.
Also, make sure he is not claiming to occupy the home on his mortgage application. This should be financed as a rental property.
Finally, I'm presuming he will want to use his VA eligibility to purchase a home of his own. Please make sure he is not using it on this home, since that will preclude him from using it when he buys his own home.
Hope this helps!
It is a great investment opportunity, tax write off, and may in fact increase his credit score. Buying a house and paying on time builds credit.