What kind of house can I afford if my income fluctuates?

Answer

You can try to qualify for a mortgage in this case by showing the paychecks you get, maintaining a high credit score (this varies by lender), and showing that you have enough money in the bank to cover a down payment plus extra to cover mortgage payments during down years. With paychecks that fluctuate from year to year, lenders typically average what you make over a two-year period.

How to discover what kind of mortgage I can afford?

If you want to figure how much you can afford and your income fluctuates, average the amount you’ve made over the last four years or so to come up with an average. Use that figure to plug into a mortgage calculator. If you figure only your best year, you might not be able to afford the mortgage in a down year.

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What will the lender consider?

The lender will also consider how much debt you have. Your debt cannot be more than 43% of your income. If you can’t get a mortgage, you can look for seller financing options, where the seller finances the deal.

You’ll probably pay a higher interest rate going this route than you would with a conventional loan. Rent-to-own, where you rent a house for a certain period with the option to buy, is another option. Part of your rent payments generally go toward the home.

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