Why Variable Income Can Make Mortgage Qualification More Challenging (and What You Can Do About It)

When you’re applying for a mortgage, lenders look at your income to determine whether you can afford the loan. But what happens if your income isn’t a simple, fixed salary? If your hours fluctuate or you earn commissions, bonuses, or overtime, getting approved can be a little more complex—even if you consistently work close to full-time hours.

If you’ve ever wondered why variable income can be harder for mortgage lenders to use, here’s a breakdown of what’s happening behind the scenes and how you can improve your chances of approval.

Lenders Look for Stability, Not Just Income Amount

Lenders don’t just check how much money you make; they want to see that your income is consistent and predictable. A borrower making a steady $5,000 per month in a salaried position is easier to approve than someone whose income fluctuates between $4,000 and $5,500—even if their average earnings are the same.

If your hours or paychecks vary, lenders have to take a conservative approach when calculating your income. This often means averaging your earnings over a period of time or even using a lower amount to account for potential fluctuations.

Even Slightly Fluctuating Hours Can Be a Red Flag

Let’s say you work close to 40 hours per week, but it’s not guaranteed. One week you might work 38 hours, another week 37.5, and some weeks a full 40. While this may not seem like a big deal to you, a lender sees inconsistency, which means they can’t assume you’ll always have full-time earnings.

As a result, your income may be classified as variable or part-time, which means:✅ Lenders may require a two-year history of this income to prove stability.✅ They may use an average income calculation rather than your most recent or highest earnings.✅ If your hours have recently decreased, they may only consider your lowest earnings rather than an average.

How Lenders Calculate Variable Income

Lenders typically review at least two years of pay history for hourly, commission, or fluctuating income. Here’s an example of how they might calculate your income:

• Year 1 Earnings: $55,000

• Year 2 Earnings: $57,000

• Most Recent Pay Stubs: Indicate a similar pay pattern

A lender may average the two years ($56,000 per year, or $4,666/month) rather than using your most recent pay stubs if the income isn’t steady. However, if your recent earnings are lower, they may take the lower figure instead.

What You Can Do to Improve Your Chances of Approval

If your income fluctuates, here are some ways to strengthen your mortgage application:

1️⃣ Maintain Consistent Hours – If possible, try to keep your work schedule as steady as you can, especially in the months leading up to applying for a mortgage.

2️⃣ Document Everything – Pay stubs, W-2s, and tax returns will be key. If you have a steady income pattern despite variable hours, strong documentation can help make your case.

3️⃣ Consider a Co-Borrower – If you’re buying a home with a partner or family member who has stable income, it could help offset the risk of variable earnings.

4️⃣ Boost Your Savings – A strong cash reserve can give lenders more confidence in your ability to make payments, even if your income fluctuates.

5️⃣ Work with an Experienced Loan Officer – Every lender has different guidelines when it comes to variable income. A knowledgeable loan officer can help structure your application in the best possible way.

Final Thoughts

Variable income doesn’t mean you can’t qualify for a mortgage—it just means you may need to provide more documentation and planning. Understanding how lenders evaluate fluctuating earnings can help you prepare and put you in the best position for approval.

If you’re unsure how your income will be viewed by a lender, feel free to reach out! I’d be happy to go over your specific situation and help you find the best path to homeownership.