Home Financing Solutions with Variable Income
As the Principal Mortgage Broker of Trust Home Financial, I’ve had the privilege of working with many small business employees who are eager to achieve the dream of homeownership. However, for those with variable income, the path to securing a mortgage can feel particularly challenging. Small businesses play a crucial role in our economy, and their employees often contribute through roles that don’t come with the traditional, steady paycheck. This article aims to shed light on the unique challenges faced by these individuals and offer tailored solutions to help them succeed in the home buying process.
The Reality of Variable Income
Employees with variable income include those who might work on commission, receive seasonal bonuses, rely on tips, or experience fluctuating hours. While this type of income can be rewarding and even lucrative, it often poses challenges when applying for a mortgage. Lenders typically prefer the stability of a regular, predictable paycheck, making it harder for those with variable income to fit into the traditional mortgage mold.
Tailored Mortgage Solutions for Variable Income Earners
Understanding these unique financial situations allows us to craft mortgage solutions that cater specifically to employees with variable income. Here are some strategies that can make a significant difference:
1. Bank Statement Loans
One of the most effective solutions for variable income earners is the bank statement loan. Instead of relying on W-2s or pay stubs, this loan program assesses income based on bank statements over the past 12-24 months. This approach provides a more accurate picture of an applicant’s financial health, making it easier for those with fluctuating income to qualify.
2. Asset-Based Loans
For those who have significant savings or investments, asset-based loans can be an attractive option. These loans allow applicants to use their assets as a basis for qualification, rather than relying solely on their income. This can be particularly useful for small business employees who may have variable income but strong financial reserves.
3. Income Averaging
Some lenders offer the option to average income over a certain period, such as two years. This method can smooth out the highs and lows of variable income, presenting a more stable financial profile to lenders. It’s an approach that can help applicants qualify for better mortgage terms.
4. Down Payment Assistance
For many variable income earners, saving for a down payment can be a challenge. Programs that offer down payment assistance, particularly those targeted at first-time homebuyers, can be a game changer. These programs can provide grants or low-interest loans to help cover the down payment and closing costs, making homeownership more attainable.
5. Credit Counseling and Improvement
Variable income earners often face additional scrutiny regarding their credit profiles. Offering access to credit counseling and improvement programs can be essential in helping these employees improve their credit scores. A better credit score not only increases the likelihood of mortgage approval but also opens the door to more favorable terms and rates.
Partnering with Small Business Employers
Small business owners have a unique opportunity to support their employees with variable income by partnering with mortgage professionals who understand these challenges. Offering tailored mortgage solutions as part of an employee benefits package can increase employee satisfaction and retention, while also making a tangible difference in their lives.