Home Purchase Mortgage Calculators
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You can use our Monthly Gross Income calculator to determine your gross income based on how frequently you are paid and the amount of income you make per pay period. Select how often you are paid and input how much money you earn per pay period and the calculator shows you your monthly gross income. If you are paid hourly, multiply your hourly wage by the number of hours you work per week. Input this income figure into the calculator and select weekly for how often you are paid to determine your monthly gross income.
Your monthly gross income is important because it impacts many important areas of your life including your ability to access credit and take out loans. For example, lenders use your gross income in addition to other factors such as your monthly debt expense and credit score to determine what size mortgage you qualify for. The higher your monthly gross income, the higher the mortgage amount you can afford. Your gross income is also used when you apply for other types of loans including credit cards as wells as car and personal loans.
It is essential to understand your gross income, or how much money you make before deductions such as taxes, social security, medicare and retirement account contributions, because this is the figure lenders use when you apply for a mortgage or other type of loan.
Because your monthly gross income plays such a key role in financial decision-making it is important that you can accurately calculate how much money you make. While determining your income is pretty easy to do if you are paid on a monthly basis it can be more complicated if you are paid on a different schedule such as hourly, weekly, bi-weekly (every two weeks), semi-monthly (twice a month) or annually.
Knowing your gross income enables you to manage your personal finances and budget and better understand the financing and credit options available to you.
Lenders use your gross income, or your income before any subtractions such as taxes, social security and medicare, to determine what size mortgage you qualify for. Other factors that determine your ability to qualify for a mortgage include your credit score, monthly debt payments, down payment amount and employment history. Lenders use your monthly gross income to determine how much you can spend on your mortgage payment and total monthly housing expense, which included property tax, homeowners insurance and other applicable fees such as homeowners association dues. For example, if you earn $60,000 in annual salary, lenders use $5,000 in monthly gross income to determine what size mortgage you can afford ($60,000 / 12 months = $5,000).
Lenders take your monthly gross income and debt payments and calculate your debt-to-income ratio. Your debt-to-income ratio represents the maximum amount of your monthly gross income that you can spend on total monthly housing expense plus monthly debt payments such as auto, student and credit card loans. Lenders usually use a maximum borrower debt-to-income ratio of 43% to 45% to determine what size mortgage you can afford, although some lenders and mortgage programs apply higher or lower ratios. In short, lenders only permit you to spend a certain amount of your income on debt expenses including your mortgage. Borrowers with higher monthly gross income and lower debt payments can afford to spend more on their mortgage payment which enables them to qualify for a larger mortgage. Borrowers who want to increase the mortgage amount they qualify for should pay down their debt to boost their debt-to-income ratio before they apply for a mortgage.
Although lenders use your gross income to determine what size mortgage you qualify for, your net income is also important to think about when you apply for a mortgage. Your net income is often called take-home pay because it is the money you earn after all deductions -- including 401(k), IRA and health insurance contributions -- are subtracted from your gross income. Borrowers need to make sure that they are comfortable paying their monthly mortgage payment and total housing expense based on their net income. Borrowers who live more expensive lifestyles may realize that although they can afford a mortgage based on their gross income, it may be challenging to make the monthly payment based on their net income and spending habits. Additionally, just because a lender says that you qualify for a certain mortgage amount does not mean that is the right loan amount for you.
No matter how often you are paid, if you receive a paycheck on a regular schedule it is relatively straightforward to determine your monthly gross income using resources like our calculator above. If you are not paid on a regular basis and have fluctuations in your paychecks then calculating your income can be tricky. For example, perhaps you are employed seasonally or make the majority of your income from commissions or bonuses with sporadic payments over the course of the year. Or you may be self-employed and take uneven payments out of your business. In these cases lenders typically use your average monthly gross income for the prior two years. For example, if you earned $40,000 last year and $50,000 this year -- no matter when you received those payments over the course of the years -- the lender adds the income for both years ($40,000 + $50,000 = $90,000) and divides by 24 months to determine your average monthly gross income, which is $3,750 in this example ($90,000 / 24 months = $3,750 in average monthly income). Lenders apply this longer, two year approach to account for significant income swings and inconsistent pay cycles.
A detailed explanation of the difference between gross and net income when you apply for a mortgage including a helpful example
Understand how lenders apply debt-to-income ratios to your gross income to determine what size mortgage you can afford
Review our comprehensive overview of borrower qualification requirements before you apply for a mortgage
Got mortgage questions? We love answering them. Submit your mortgage questions and receive an informative response within 24 hours
In addition to your gross income, your credit score is another important factor when you apply for a mortgage. Understand how your credit score impacts your ability to qualify for a mortgage as well as your interest rate
Gross Income Definition: https://www.consumerfinance.gov/practitioner-resources/youth-financial-education/glossary/