How to Get Approved for a Kentucky Mortgage with Variable Income: Complete FHA, VA, USDA & Fannie Mae Guide
Helping Kentucky families with irregular income qualify for mortgages since 2004. Over 1,300 families approved.
Table of Contents
What Is Variable Income? (And Do You Have It?)
Variable income is any earnings that aren't consistent from month to month. Unlike a traditional salary where you know exactly what you'll earn each paycheck, variable income fluctuates based on hours worked, sales performance, or seasonal demand.
Examples of Variable Income
How Lenders Calculate Variable Income: The Averaging Method
This is where most borrowers make mistakes. Lenders don't use your highest earnings—they use an averaging method that aligns with loan program guidelines. The specific method depends on your income type and loan program.
The Critical Bonus Income Calculation
Bonus income is one of the most commonly miscalculated forms of variable income. Here's the exact formula:
Annual Bonus Calculation Example
Scenario: You receive a $12,000 bonus on March 31st every year
✓ CORRECT: $12,000 ÷ 12 months = $1,000/month qualifying income
This is the right approach because your bonus is paid once per year. To get the monthly average, divide by 12.
✗ INCORRECT: $12,000 ÷ 3 months = $4,000/month
Many borrowers or even inexperienced loan officers divide by 3 (the bonus quarter), but lenders reject this. It inflates your income and creates an inaccurate qualification.
Impact on Your Loan: Using the incorrect calculation could cause your application to be denied later, even after you've invested time and money in the process. That $3,000/month difference could push you over a debt-to-income limit.
Overtime Income: The Year-to-Date Analysis
Overtime is trickier because it's often cyclical. Lenders compare your current overtime earnings to your year-to-date earnings to spot patterns.
Overtime Income Analysis
Real-world example: If you're a delivery driver and earned $800 overtime in November but $2,500 in December (holiday season), lenders need documentation explaining the seasonal pattern. Transportation workers with snow plow income, for instance, have documented seasonal increases in winter—that's acceptable with proper paperwork.
Income History Requirements for Kentucky Mortgages
How long do you need to have been earning variable income? The answer is more flexible than most borrowers think, but it depends on your specific situation.
Income History Timeline Requirements
The Standard: 2+ Years of Variable Income
Most loan programs prefer to see at least two full years of receiving the same type of variable income. This shows lenders that your income is stable and likely to continue.
The Exception: 12-24 Months with Compensating Factors
If you've only received variable income for 12-24 months, you may still qualify if your application includes strong offsetting factors:
- Excellent credit score (720+): Demonstrates financial responsibility
- Low debt-to-income ratio (under 43%): Shows you can handle payments
- Significant savings/assets: Proves you have a financial cushion
- Job stability: Same employer for 2+ years
- Professional credentials: Licenses, certifications proving career longevity
Example: A real estate agent with only 18 months of commission income but a 750 credit score, $50,000 in savings, and a 35% debt-to-income ratio could get approved for an FHA loan.
Income Trending Analysis: The Make-or-Break Factor
Even with two years of income history, if your earnings are declining, you'll likely face denial. Here's how lenders analyze your income trend.
The Trending Process
After calculating your current monthly variable income, lenders compare it to previous years using:
- W-2 forms from the past 2 years
- Signed federal income tax returns (Form 1040)
- Verification of Employment (VOE) from your employer
- Third-party employment verification reports
Lenders look for three specific patterns:
The Three Income Trending Scenarios
✓ Scenario 1: Stable or Increasing Income (BEST CASE)
What it means: Your variable income stays the same year-over-year or grows.
Example income progression:
- Year 1 overtime: $800/month
- Year 2 overtime: $950/month
- Year 3 overtime: $1,050/month
Lender's decision: We average your income across the entire period and use the highest recent amount.
Your qualifying income: $1,050/month (current year amount)
Approval odds: Excellent
⚠️ Scenario 2: Declining But Stabilized Income (POSSIBLE BUT TRICKY)
What it means: Your income dropped but has since leveled off—it's not still declining.
Example income progression:
- Year 1 commissions: $3,000/month
- Year 2 commissions: $2,000/month (decline)
- Year 3 commissions: $2,000/month (stabilized)
Lender's decision: We do NOT average across the declining period. We use the current, stabilized amount.
Your qualifying income: $2,000/month (current stabilized amount, NOT $2,333 average)
Important caveat: You must provide documentation explaining why income declined (job change, market downturn, etc.) and evidence it won't decline further.
Approval odds: Possible with strong compensating factors
✗ Scenario 3: Continuously Declining Income (LIKELY DENIAL)
What it means: Your income is still trending downward across multiple years.
Example income progression:
- Year 1 bonuses: $3,000/month
- Year 2 bonuses: $2,500/month
- Year 3 bonuses: $2,000/month
Lender's decision: Income is unstable. We cannot use any variable income from this source for qualification.
Your qualifying income: $0 from this source (no variable income used)
Approval odds: Very Low
Worried About Your Income Trend?
Let me review your specific situation. I can tell you exactly how lenders will view your income and what steps might help.
Call/Text 502-905-3708 for a free income review
How Variable Income Affects Each Loan Program
Not all loan programs treat variable income the same way. Different programs have different flexibility. Here's how each major program handles variable income:
FHA Loans (Most Flexible)
Variable Income Tolerance: Excellent
- Accepts 12-24 months variable income history
- Accepts declining income if stabilized
- Credit score requirement: 580+
- Down payment: 3.5% minimum
- Great for first-time buyers
Best for: Hourly workers, commission-based, bonuses
Learn FHA approval process →VA Loans (Very Flexible)
Variable Income Tolerance: Excellent
- No down payment required
- No minimum credit score
- Accepts variable income with documentation
- Accepts declining income if explained
- Veteran/active military only
Best for: Veterans with commission, overtime, bonuses
Learn VA approval process →USDA Loans (Moderate Flexibility)
Variable Income Tolerance: Good
- Requires 2 years variable income history
- No down payment required
- Rural property requirement
- Income limits by county
- Requires strong documentation
Best for: Rural buyers with stable variable income
Learn USDA approval process →Fannie Mae Conventional (Strict)
Variable Income Tolerance: Moderate
- Requires 2 years consistent/increasing income
- Credit score: 680+ preferred
- Down payment: 5-20%
- Declining income often rejected
- Stricter documentation
Best for: Buyers with stable variable income + strong credit
Learn Fannie Mae approval process →KHC Programs (Designed for KY Buyers)
Variable Income Tolerance: Excellent
- Specifically for first-time buyers
- Flexible variable income standards
- Down payment assistance available
- Lower credit score requirements
- Kentucky residents only
Best for: Kentucky first-time buyers needing down payment help
Learn KHC approval process →| Loan Program | Min. Income History | Min. Credit Score | Down Payment | Variable Income Flexibility |
|---|---|---|---|---|
| FHA | 12-24 months | 580 500 | 3.5%, 10% down | Excellent ✓✓✓ |
| VA | 12+ months | None but 620 preferred | 0% | Excellent ✓✓✓ |
| USDA | 2 years | None but most lenders preferred 620 for manual underwriter and 640 for GUS automated Approval | 0% | Good ✓✓ |
| Fannie Mae | 2 years (stable) | 620 but most get approved with 720 higher credit scores/td> | 3-5%+ | Moderate ✓ |
| KHC | 12-24 months | 620 for Govt and 660 for Conventional | 0% Down $12,500 Down payment Assistance | Excellent ✓✓✓ |
Documentation Checklist: What You Need to Get Approved
The difference between approval and denial often comes down to having the right documentation organized and ready. Here's exactly what you need:
Core Variable Income Documents (Required)
- Two years of paystubs — Recent stubs showing current earnings AND year-to-date totals
- Two years of W-2 forms or signed federal tax returns (Form 1040)
- Current year paystubs — Most recent 2-3 paystubs showing year-to-date earnings
- Verification of Employment (VOE) — Signed by your employer confirming income and employment stability
- Written explanation — For any income changes, gaps, or fluctuations (if applicable)
Supporting Financial Documents
- Bank statements — 2 months of statements showing savings and ability to manage finances
- Proof of employment — Current employment letter, job offer, or contract
- Tax return transcripts — IRS Form 4506-C transcript for verification
- Asset documentation — Retirement accounts, investments, real estate equity (if used for qualification)
- Debt documentation — List of all debts with current balances and monthly payments
Conditional/Optional Documents
- Commission structure letter — Explains how your commission is calculated and paid
- Bonus agreement — Signed document showing bonus amount and frequency
- Seasonal work documentation — Explains why your income is cyclical (e.g., snow plow contracts)
- Career licensing/credentials — Real estate license, insurance license, professional certifications
- Additional employment letters — From all employers if you have multiple income sources
Why Variable Income Applications Get Denied (And How to Avoid It)
I've reviewed thousands of mortgage applications. Here are the most common reasons variable income applications fail—and how to prevent it:
Top 6 Variable Income Denial Reasons
Your Step-by-Step Approval Path
Here's exactly what happens from your first call to loan approval with variable income:
The Variable Income Approval Process
What to Do RIGHT NOW (If You Have Variable Income)
Don't wait. Take these actions today:
- Gather your documents — Collect 2 years of paystubs, W-2s, and tax returns
- Analyze your income trend — Is it stable, increasing, or declining? (This determines your approval odds)
- Identify the right program — Are you a first-time buyer? Veteran? Rural buyer? (This determines your best option)
- Get a free pre-approval — Call or text me for a same-day income analysis
- Understand your numbers — Know exactly how much home you can afford
Ready to Get Started? Let's Discuss Your Variable Income Mortgage
I'll review your specific situation, calculate your exact qualifying income, and show you which loan program gives you the best approval odds.
📞 Call/Text: 502-905-3708
📧 Email: kentuckyloan@gmail.com
Free mortgage application • Same-day pre-approval • No obligations
Why Kentucky Homebuyers Choose Me
With over 20 years of mortgage experience and 1,300+ Kentucky families helped, I specialize in situations others turn down:
- Variable income expertise: I know exactly how to present your income to maximize approval odds
- Local Kentucky knowledge: I understand state-specific programs like KHC and their unique flexibility
- Fast approvals: Same-day pre-approval because I focus on efficiency and organization
- Down payment assistance: I identify programs that reduce your out-of-pocket costs
- Personal attention: You work directly with me—not a processing team or script
Contact Joel Lobb, Mortgage Broker FHA, VA, KHC, USDA
📞 Call or Text: 502-905-3708
📧 Email: kentuckyloan@gmail.com
🌐 Website:
Licensing Information:
Joel Lobb, Mortgage Broker FHA, VA, KHC, USDA
NMLS Personal ID: 57916
Company NMLS ID: 1738461
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