Variable Income and Getting a Mortgage: Why Your Hourly Rate May Not Tell the Whole Story
If you’re paid hourly, you may assume figuring out your income for a mortgage is simple:
Hourly rate × 40 hours per week = qualifying income.
But what happens if your employer offers you 40 hours a week, yet your paycheck changes when you miss work for an appointment, take unpaid time off, or work fewer hours?
Your mortgage lender may consider your earnings variable income, which can change how much income is used to qualify you for a home loan.
What Is Variable Income?
Variable income is income that is not consistently earned at the same amount from paycheck to paycheck.
This can include situations where you:
Are paid hourly but your hours fluctuate
Are scheduled for 40 hours but aren't guaranteed 40 paid hours
Have unpaid time off
Earn overtime, bonuses, commissions, shift differentials, or other additional income
Work different numbers of hours from one pay period to another
Even if your hourly rate never changes, the amount you actually earn can fluctuate.
“But My Employer Says I Work 40 Hours a Week”
This is where borrowers can get confused.
Being offered or normally scheduled for 40 hours per week isn't necessarily the same as having 40 guaranteed paid hours every week.
For example, suppose you make $25 per hour.
At 40 hours per week, you might expect your gross monthly income to be approximately:
$25 × 40 hours × 52 weeks ÷ 12 = $4,333 per month
But if your year-to-date earnings show that you are actually averaging $3,600 per month, the lender may not automatically be able to use $4,333.
Depending on the loan program, employment history, documentation, and circumstances, the lender may need to evaluate your actual earnings and income history instead.
Why Year-to-Date Income Matters
Your current paystub can tell an underwriter much more than just your hourly rate.
Underwriters may review your:
Year-to-date earnings, hours worked, previous W-2s, employment history, prior-year income and verification of employment.
They're looking for a reasonable calculation of the income that is expected to continue.
If your calculated hourly income is significantly higher than what your year-to-date earnings support, that difference may need to be explained or documented.
Variable Income Doesn't Mean You Can't Get a Mortgage
This is important: having variable income does not automatically prevent you from qualifying for a mortgage.
It simply means your qualifying income may require a little more analysis.
The amount a mortgage lender can use isn't always the same as the amount you could earn if you worked every available hour.
That's why two borrowers who both make $25 per hour could potentially have different qualifying monthly incomes.
Why This Matters Before You Start Shopping for a Home
Your qualifying income directly affects your debt-to-income ratio (DTI) and ultimately how much home you may qualify to purchase.
If you calculate your budget assuming the lender will use 40 hours per week, but underwriting later determines your income needs to be averaged, your qualifying income could be lower than expected.
That's something I'd much rather identify before you make an offer on a house.
Get Your Income Reviewed Before You Shop
If you have hourly or variable income, overtime, bonuses, commissions, multiple jobs, or an unusual work schedule, don't assume you won't qualify—and don't assume an online mortgage calculator is giving you the correct answer.
I can review your income documentation before you start shopping and help determine how your income may be calculated for mortgage qualification.
Looking for a Mortgage Lender in Cypress or Houston, Texas?
If you're buying a home in Cypress, Houston, Katy, Tomball, Spring, or anywhere in Texas, I can help you understand your mortgage options and how your income may affect your home-buying budget.
Whether you're a first-time homebuyer, move-up buyer, veteran, investor, or self-employed borrower, my goal is to help you understand your options before you make a major financial decision.
Contact me for a FREE 10-Minute Homebuyer Mortgage Checkup.
Jennifer No, RMLO
C&T Mortgage, Inc.
18739 Mueschke Rd Ste B Cypress, TX 77433
Office: 832-220-1480
Cell: 936-525-7225
Company NMLS: 1231852Individual NMLS: 1310829
Mortgage qualification and income calculations are subject to loan program guidelines, lender requirements, underwriting review, and documentation. Examples are for educational purposes only.
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