Income Required for Mortgage Calculator
Use our Income Required for Mortgage Calculator to determine the monthly gross income required to qualify for a given mortgage amount. In short, this helpful calculator shows you how much money you need to make to afford a specific mortgage. This can be especially useful if you have a home in mind that you want to buy but you are not sure if you earn enough to qualify for the loan. We recommend that you evaluate multiple scenarios using different interest rates, loan amounts and lengths to understand how each factor impacts the income required to qualify for the mortgage you want.
How Our Income Required for Mortgage Calculator Works
Our Income Required for Mortgage Calculator lets you understand how much money you need to make to afford a mortgage based on multiple factors. In addition to the mortgage amount you want to qualify for, our calculator uses the following key inputs:
Interest Rate. This is the current mortgage rate. The lower the rate, the less income you need to qualify for the mortgage.
Mortgage Term. This is the length of your loan. The longer your mortgage, the lower the monthly payment and less income required to qualify for the loan.
Down Payment. Your down payment impacts what price home you can buy which in turn impacts your property tax and insurance. A larger down payment enable you to afford a more expensive home or reduces the mortgage you need to buy the home.
Total Monthly Debt Payments. This figure includes payments for credit cards as well as car, student and personal loans but excludes your current housing expense such as your rent or mortgage payment. Please input your monthly debt payment and not your current loan balance. For example if you pay $380 per month on a personal loan with a $6,000 balance, you include $380 in the monthly debt payments field.
Homeowners Association Fees. If the property you you want to buy requires homeowners association HOA dues then this expense is considered monthly debt and increases how much you need to earn to qualify for the mortgage you want.
Credit Score. Your credit score is another important input as borrowers with higher scores pay lower mortgage rates which reduces how much money you need to earn to afford the loan.
Our calculator provides the following information about the income required for a mortgage as well as your loan:
Monthly Gross Income Required to Qualify for Mortgage. This is how much money you need to earn on a monthly basis before deductions such as taxes, social security and medicare, to qualify for the mortgage you want.
Mortgage Payment. This is your monthly loan payment based on the mortgage amount you want, current interest rates and the length of your loan.
Property Tax and Homeowners Insurance. In addition to your monthly payment, property tax and insurance also impact your ability to qualify for a mortgage. These costs vary based on property value, location and coverage level.
Total Monthly Housing Expense. This figure includes your mortgage payment plus estimated property tax, homeowners insurance and HOA dues, if applicable. Total monthly housing expense reflects the all-in cost of owning a home.
How Much Money You Need to Make to Qualify for a Mortgage
Gross Income Versus Net Income
Lenders use a borrower's monthly gross income before any deductions such as taxes, social security and medicare to determine what size mortgage you can afford. The amount of monthly gross income required to qualify for a mortgage depends on many factors including your monthly debt expense, credit score and your desired loan amount. Although lenders use gross income for the mortgage qualification process, borrowers should make sure they are comfortable paying their monthly mortgage payment and total monthly housing expense including property tax, homeowners insurance and other applicable housing-related costs based on their net income, or take-home pay. Borrowers should always remember that just because you qualify for a certain mortgage amount according to a lender does not mean that is the right mortgage amount for you. Our Income Required for Mortgage Calculator tells you how much gross income you need to earn to afford a loan because this is lenders assess applicants.
Monthly Debt Expense
Your monthly debt expense for items such as credit card, auto and student loans plays a significant factor in determining how much money you need to earn to qualify for a mortgage. Lenders also consider child support and alimony payments to be debt expenses. Simply put, the higher your monthly debt expenses, the more gross income you need to qualify for a mortgage. The less your monthly debt expense, the less money you need to earn to qualify for a mortgage. In most cases borrowers improve their ability to qualify for a mortgage by reducing their monthly debt payments before they apply. For example, you could pay off part or all of your credit card debt or refinance a car loan at a lower interest rate to reduce your monthly payment. From a lender's perspective, the lower your monthly debt payments, the more money you have available to make your monthly mortgage payment. It is important to emphasize that lenders focus on your total monthly debt payments as opposed to your debt balance to determine what size mortgage you can afford. For example, if you have a $15,000 car loan with a $500 monthly payment, the lender uses the $500 monthly loan payment to qualify you for a mortgage, although the figures are related to each other and both are important. Use our Income Required for Mortgage Calculator to understand how changes in your monthly debt expense impact how much money you need to make to qualify for a mortgage.
Borrower Debt-to-Income Ratio
Your monthly gross income and debt expense are important because lenders use your debt-to-income ratio to determine what size mortgage you qualify for. A debt-to-income ratio represents the maximum amount of monthly gross income that you can spend on total monthly housing expense (mortgage payment, property tax and insurance) plus monthly debt expenses such as credit card, auto and student loans. Lenders typically apply a maximum borrower debt-to-income ratio of 43% to 50% to determine what size mortgage you qualify for, although some lenders and mortgage programs permit debt-to-income ratios of 50% or higher. The higher the debt-to-income ratio used by the lender, the higher the mortgage amount you qualify for. Additionally, the less monthly debt expense you have, the more mortgage you can afford because you can spend more money on your monthly mortgage payment while maintaining the same debt-to-income ratio.
Other Costs Factors to Consider
If the property you are buying requires you to pay a monthly homeowners association fee or co-op dues then then you need to make more money to qualify for a mortgage as compared to buying a single family home that may not require those extra costs. HOA and cop-op fees are counted included in your monthly debt expense which can make it more challenging to afford the loan you need, especially if your application is right on the border. It is important to understand how extra expenses affect your ability to qualify for the mortgage you want.
Your Type of Employment and Job History Also Matter
In addition to evaluating how much money your make, lenders also consider what type of work you do and your employment history when you apply for a mortgage. Self-employed applicants are usually required to have a two year track record, as verified by your tax returns, to use that income to qualify for a mortgage. Lenders also looks at the consistency of your income and you may need to explain any seasonality or fluctuations in earnings. The two year work history also usually applies to bonus and commission income because lenders want to verify that your earnings are steady and expected to continue after your loan closes. When determining how much money you need to make to qualify for a mortgage, borrowers should be sure to understand lender guidelines for income and employment history, especially if you are not a salaried or hourly worker that receives a W-2 from your employer.
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Sources
"Understanding What You Can Afford." My Home by Freddie Mac. Freddie Mac, 2019. Web.