A steady income is a huge plus if you wish to purchase a property and afford all associated costs. But what about those buyers who have a variable income, like farmers or self-employed shopkeepers, and those of us who work on straight commission?
A variable income means that your income fluctuates and is not always the same each month. With an inconsistent monthly cash flow, how can you qualify to purchase a property?
Keep Thorough Financial Records
With a variable income, it is essential to keep thorough financial records:
- Proof of income and accounts receivable
- Bank statements
- Proof of assets
- Proof of savings
These records will be provided to your lender upon request to show that you have the means to purchase and maintain a home loan on a variable budget. You will also have to provide proof of identity, a list of debts, and other documentation such as a PFS (Personal Financial Statement).
Get The Right Paperwork For Your Lender
To grant your lender permission to access your tax returns from the last two years, you will need to sign a Form 4506-T. This form shows your lender that you are being honest about your income and will give you a chance to explain any income trends, such as seasonal drops.
Have A Good Down Payment & Savings
When purchasing a property with a variable income, have enough saved up to cover all associated fees like closing costs and home insurance. It also helps to have a reasonable down payment to make yourself more attractive to sellers. Lenders love home buyers with 10% or 20% down, and more is better, but not necessary in most cases. We have helped many self-employed buyers with as little as a 5% down payment!
At Merchant of Homes, our professional, experienced agents will work with you to find a property that meets your needs and budget.
Keep A Good Budget
It is not enough to have a down payment and savings. You must also know how to manage your finances. A good budget will go a long way to keeping yourself financially responsible and having enough money for the things you need each month. Budget not only daily living expenses but also home maintenance and loan payments. Set aside some savings every month you can for unforeseen expenses.
Have A Good Credit Score
A good credit score indicates to lenders that you are responsible with your money and improves your chance of getting approved for a home loan.
Aim for a credit score of at least 650-700. If your credit score is lower, improve it by paying monthly debts on time and avoiding large purchases such as a car prior to applying for a home loan. Remember to check your credit report regularly and submit any errors you find for correction. If your credit needs repair, we can help! The Merchant Team can put you in touch with professional credit repair specialists that will go to bat for you and guide you to a credit score you can be proud of!