Variable Income and Mortgages: Documentation and DTI

If you’re one of a growing number of people in today’s “gig economy” who make money in variable or uneven ways, you may be wondering whether purchasing a home is an option for you. Mortgage lenders generally want to see robust income to lend to borrowers, so will your variable income be robust enough to secure a home loan?

At VIP Mortgage Inc., we’re here to tell you that the answer is yes — and we’ve worked with many clients on a variable income to get them the qualification and loan amounts they need to move forward with the purchase of the home of their dreams, or with a refinance of a current mortgage. What are some important factors to consider if you have a variable income and want to evaluate your options for a mortgage? This two-part blog series will go over everything you need to know.

Importance of Documentation

Perhaps the single most important concept for those with variable income looking to obtain a mortgage is that of documentation. Lenders generally want to see two years of personal and business tax returns — this is a tougher process for those with self-employed incomes, as it can be difficult to track and report all income.

The first step is using your best estimate and compiling the documentation that backs that estimation; then, go back and update your taxes based on actual numbers once they’re available. Your lender will also need to see three months of personal bank statements (and three months of personal and business statements for those with self-employed incomes). Keeping these documents on hand will help you to be prepared for the mortgage process without having to scramble at the last minute. Be prepared to provide a lender with other documents as-needed, as well.

Debt to Income Ratio

One of the most important factors to consider while documenting your finances is your debt-to-income ratio, which is important for both standard and variable incomes. If your debt-to-income ratio is above 43%, your lender may have difficulty qualifying you for a mortgage. In other words, if your monthly debt payments add up to more than 43% of your total income, the bank may not qualify you for a loan. Generally speaking, lenders want this ratio to be about 31% or lower — though this may vary somewhat.

Variable incomes can create challenges for this ratio — take that into account when beginning the mortgage application process. The good news is that you can include your variable income as part of the total debt payment, which may make it much easier to qualify and reduce your debt-to-income ratio.

For more on obtaining a mortgage despite uneven or variable forms of income, or to learn about any of our home loan services, speak to the staff at VIP Mortgage Inc. today.