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Using Variable Income to Qualify for a Mortgage in California

Home buyers with variable income often wonder if they can qualify for a mortgage loan in California. And the short answer is yes!

Each year, many borrowers in the Golden State with variable income qualify for mortgage loans. A lot of the home loan programs available today allow lenders to average income over a period of time, in order to approve borrowers for financing.

This guide explains how a person with variable income can qualify for a mortgage loan to buy a house in California, based on their average earnings.

What Is Variable Income Exactly?

In this context, the term “variable income” means that your earnings fluctuate throughout the year. This is different from a fixed salary, where an employee or worker earns the same amount of money month after month.

California workers who fall into this variable category might have income that’s higher in some months and lower in others. So they can’t always predict exactly how much they’ll earn in a given period. But they can average it out, in order to qualify for a mortgage loan.

Many hardworking individuals across various industries have variable income, and a lot of them are well qualified for mortgage financing. This includes the following types of positions.

Sales-based roles

  • Real estate agents: Earn commissions based on property sales.
  • Sales representatives: Commissions vary depending on products sold and performance.
  • Insurance agents: Earn commissions and bonuses based on policies sold.

Performance-driven professions

  • Musicians: Income fluctuates based on gigs, performances, and album sales.
  • Artists: Earnings vary depending on artwork sales, commissions, and grants.
  • Actors: Income depends on projects booked, roles secured, and residual payments.

Flexible and contract-based work

  • Freelancers: Writers, developers and consultants earn based on project contracts.
  • Gig workers: Uber drivers, DoorDashers and the like earn based on completed tasks.
  • Seasonal workers: Agriculture and tourism workers often have seasonal variations.

Self-employed professionals

  • Small business owners: Income depends on performance and profits.
  • Doctors and dentists: Private practitioners earn based on visits or procedures.
  • Lawyers: Self-employed lawyers earn based on billable hours and case outcomes.

This is not an exhaustive list. But it shows how many people there are out there with variable income, who could still qualify for a mortgage loan in California.

Qualifying for a Mortgage Loan in California

As a home buyer, you have a lot of different options when it comes to the type of mortgage you use. And many of them allow for variable income to be counted.

Take the ever-popular “conventional” mortgage loan, for example.

Conventional (non-government-backed) mortgages make up the bulk of lending activity in California. Many of these home loans are sold to Freddie Mac and Fannie Mae, through what’s known as the secondary mortgage market. So the lenders that offer these loans have to ensure they meet certain guidelines.

Those guidelines allow lenders to consider average income over a certain period of time, rather than focusing on consistency from one month to the next.

For example, here is what Fannie Mae says about variable income for mortgage loans:

History of Receipt: Two or more years of receipt of a particular type of variable income is recommended; however, variable income that has been received for 12 to 24 months may be considered as acceptable income, as long as the borrower’s loan application demonstrates that there are positive factors that reasonably offset the shorter income history.

This means California home buyers with variable income should ideally have at least a two-year history for the mortgage lender to review. But it also allows people with a shorter history of variable income to qualify for mortgage financing, if there are other compensating factors.

Other mortgage programs have similar flexibility built into them, and that includes FHA and VA.

Debt-to-Income Ratio and Ability to Repay

When you apply for a mortgage loan in California with variable income, the lender will review your recurring debts and average income over time. The goal is to ensure you have enough income to cover your monthly mortgage payments, along with other obligations like credit cards or car payments.

If you have a favorable debt-to-income ratio with the ability to repay the loan, you could qualify for a mortgage in California despite having variable income.

It helps to have good credit as well, since your credit score shows how you’ve borrowed and repaid money in the past. But there’s no industrywide minimum for credit scores. Like other aspects of the mortgage qualification process, this can vary from lender to lender.

Benefits of Working with a Mortgage Broker

California home buyers with variable income can benefit by working with a mortgage broker. Unlike a traditional bank or lender that only offers a few loan products, mortgage brokers usually partner with multiple lenders. This gives them access to a broader range of products.

Mortgage lending requirements and criteria can vary significantly from one lender to the next. If you walk into a bank and apply for a mortgage with variable income, you might have a harder time qualifying for a loan. A broker, on the other hand, can communicate with several different lenders to find a good fit for you.

As a California mortgage broker, Bridgepoint Funding frequently helps borrowers with variable income. And that includes almost all of the different types of workers listed above.

Ready to explore your options? We can review your financial situation, including your variable income, to determine if you’re a good candidate for a mortgage loan. Please contact our knowledgeable staff with any financing questions or to apply for a loan.

Mike Trejo

Mike Trejo is a Bay Area mortgage broker with 20+ years of knowledge and experience.

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