You can make your lender aware that you receive the reimbursements, as long as they occur on a regular basis, but lenders typically do not add work reimbursements to your income when you apply for a mortgage. When lenders calculate your debt-to-income ratio -- which they use to determine the mortgage amount you qualify for -- they use your monthly gross income, which is your income before any deductions for taxes, social security, medicare and retirement account contributions, instead of your net income or take-home pay.
In short, your debt-to-income ratio is the percentage of your gross income that you are permitted to spend on your monthly mortgage payment, property tax, homeowners insurance as well as mortgage insurance and homeowners association (HOA) dues, if applicable, plus your monthly debt payments for credit cards and other loans. The higher your gross income and lower your non-housing related monthly debt expense, the higher the mortgage amount you can afford, and vice versa.
Because you pay for items such as your cell phone bill or personal computer with your take-home pay, it does not make sense to add reimbursements for these costs back to your gross income to calculate your debt-to-income ratio. In short, the income figure the lender uses for your mortgage application is how much you make before these expenses so there is no need to add them back.
Review What is the Debt-to-Income Ratio for a Mortgage?
The example below shows the difference between gross and net income. Lenders use your gross income to determine the mortgage you qualify for. You use your net income to pay for expenses such as your cell phone bill and other regular purchases.
Monthly Gross Income: $6,250
(-) Taxes, Social Security and Medicare: $1,825
(-) Retirement Account Contribution: $125
(-) Health Insurance: $65
Monthly Net Income: $4,235
In the example above, the lender uses the monthly gross income figure of $6,250 for the applicant’s debt-to-income ratio. Ultimately, the mortgage amount you can afford depends your monthly debt expenses and loan terms including your mortgage rate and the length of your loan.
Use ourMORTGAGE QUALIFICATION CALCULATORto determine the mortgage you can afford
To calculate the debt figure for your debt in your debt-to-income ratio, the lender only includes monthly payments for recurring debts such as credit cards as well as car, student and personal loans. Monthly utility costs including your cell phone bill, are usually not included in your debt-to-income ratio and neither are costs for one-time or non-recurring purchases such as a personal computer, unless you charge these items to your credit card or take out a personal loan to pay for them.
Because these utility and one-off costs are not included in your debt-to-income ratio, it does not make sense for the lender to add these back to your income (or subtract them from your monthly debt expense), even if your employer reimburses you for these items.
Another reason lenders usually exclude reimbursement payments from your loan application is because your company expense policy could change in the future or you could change jobs and no longer receive the payments. Lenders want to rely on recurring, more steady income to determine the mortgage you qualify for.
"B3-6-02, Debt-to-Income Ratios." Selling Guide: Fannie Mae Single Family. Fannie Mae, February 5 2020. Web.« Return to Q&A Home About the author