When purchasing a home, lenders want to see that you have a steady income and make monthly mortgage payments. You must also be able to afford all fees and costs associated with the purchasing process.
But what if you have a variable income?
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It is not impossible to purchase a home with a variable income, but it does take some extra effort. Here is what you need to do:
Keep All Documents Up-To-Date
With a variable income, you must keep all documents up-to-date. Provide your lender with:
- Proof of income
- Bank statements
- Proof of investment assets and savings
- If renting, proof of making the rent on time from the landlord
Like all persons purchasing a home, you must also provide proof of identity, your list of debts, credit score, and other documentation.
Improve Your Credit Score
Improving your credit score will go a long way in getting a home approved with a variable income. A good credit score shows the lender that you can manage debt responsibly. Aim for a score of at least 650-700.
A good credit score will give you a better chance of not only getting approved for a loan but lower interest rates and a larger loan.
Get The Right Paperwork
You will need to sign a Form 4506-T, granting your lender permission to access your tax returns. In doing so, you will be showing your lender that you are honest about your income. You will also need at least two years of tax returns and an explanation of income trends, such as seasonal income drops. Be ready to explain income trends to your lender.
Secure A Healthy Down Payment & Good Savings
You will want to have built up enough savings to put down a big enough down payment to be attractive to buyers and lenders. However, you mustn’t spend all of your savings on a down payment, instead of looking at the cash available to you, the home’s price, and your mortgage program and credit score.
If you need to put down a smaller down payment, you can do that. A smaller down payment means you can avoid draining your savings, allowing you to have a healthy homeowner’s budget and not struggle to make monthly payments and other debts.
