Variable Income Types

December 19th, 2020

income

If you have variable income that changes and fluctuates, the rules of assessing your income to qualify for a mortgage are different than if you had a fixed salary.

Some types of variable income would be:

  • Bonuses
  • Overtime
  • Hourly income
  • Self-employment
  • 1099 income
  • Dividends and interest income
  • Capital gains
  • Part time jobs
  • Rental income

And there are various other types of variable income.

To verify that your variable income is stable and reliable, a mortgage lender must obtain information about prior earnings (typically a minimum of a 2 year history of prior earnings). With a 2 year history, a mortgage lender can determine an average earnings figure by averaging the last 2 years of the variable income.

Variable income earned for 1 year to less than 2 years maybe accepted, depending on the borrower’s other positive financial factors that can offset the shorter income history.

Mortgage lenders are also concerned about income trending. Your mortgage lender will document your previous two years income, as well as year-to-date income for the current year and specific scenarios, such as:

  • The income trend is stable or increasing the income amounts should be averaged.
  • The income trend is declining but the income has since stabilized, the lower amount of variable income must be used.
  • The income trend is declining then the income may not be stable. Additional analysis must be conducted to determine if any variable income should be used at all, but in no instance may it be averaged over the period when the decline occurred.

Variable income can be tricky to document and determine the qualifying amount as you can see. That’s why you should contact an experienced mortgage lender to discuss the details of your situation.

Brian Martucci is a loan officer for Capital Bank Home Loans, a division of Capital Bank, N.A. He has been in the mortgage industry since 1986 and has served in a number of roles, including loan processor, loan officer, mortgage broker, branch manager, and vice president. Brian Martucci – NMLS# 185421. His opinions do not necessarily reflect the opinions and beliefs of Capital Bank Home Loans or Capital Bank. Capital Bank, N.A.- NMLS# 401599. Click here for the Capital Bank, N.A. “Privacy Policy”.​

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