How to determine how much money you need to make to qualify for a mortgage

By Harry Jensen, Trusted Mortgage Expert with 45+ Years of Experience

Edited by Michael Jensen, Mortgage and Finance Guru

Updated October 20, 2020

Figuring out how much money you need to make to qualify for a mortgage involves a lot of factors and no two borrowers are the same. Inputs like your loan amount, monthly debt expense, credit score and mortgage program all affect the income required to afford a monthly loan payment.

Below we outline these factors so you can understand how each affects your ability to qualify. Continue reading to learn how to determine how much money you need to earn to afford the mortgage you want.

Mortgage Amount

This point may be obvious but the higher your mortgage amount, the more money you need to earn to qualify. It is important that you feel comfortable making the monthly payment so be sure to choose a loan amount that fits your personal financial budget.

Selecting the right loan size is one of the most important decisions you make when you get a mortgage.  Make sure that you can afford the loan based on your income and other monthly debt payments.

Monthly Debt Expense

Simply put, the higher your monthly debt expense, the more money you need to make to qualify for a mortgage and vice versa. Payments for credit cards as well as car, personal and student loans are all included in your debt-to-income ratio.

Use ourREQUIRED INCOME MORTGAGE CALCULATORto determine how much money you need to make to afford the loan you want

This is why it is a good idea to pay off or pay down your debt before you apply for a mortgage. Reducing your monthly debt payments also reduces the income needed to qualify for a specific mortgage amount or increases the loan you can afford.

Credit Score

Your credit score impacts the mortgage you qualify for because it affects your loan terms. Depending on the loan program, applicants with a higher credit score are eligible for more favorable terms, including a lower mortgage rate.

The lower your rate, the lower your monthly loan payment and the less money you need to make to qualify for the mortgage. This is why it is a good idea to make sure your credit is in excellent shape before you submit your loan application.

Mortgage Length

The length of your mortgage, also known as the term, also influences the loan you can afford. The longer your mortgage, the lower your monthly payment and the less you need to earn to qualify. The shorter your loan, the higher your payment and more money you need to make.

This is why most people select longer loans such as a 30 year mortgage. That said, it is important to understand that selecting a shorter mortgage, such as a 15 year loan, can significantly reduce your total interest cost over your loan.

Loan Program

The loan program you choose is another important factor. Mortgage rates vary by program, which impacts the monthly loan payment and therefore the amount of income you need to qualify.

For example, the initial interest rate on an adjustable rate mortgage (ARM) is lower than the rate on a comparable fixed rate mortgage. This means you may need to earn less income to qualify for a mortgage if you select an ARM as compared to a fixed rate loan, although ARMs involve more risk for borrowers.

Property Tax Rate

Although the property tax rate does not directly impact the mortgage you can afford, it does affect the property you can afford. In short, if you want to buy a home with a high property tax rate, you need to make more money.

Property tax rates vary by county and state and can range from less than 1% of the property value to over 3%. We recommend that you determine the property tax rate for the home you want to buy before you submit your offer and apply for the mortgage.

Homeowners Association (HOA) Dues

If the property you are financing requires a monthly HOA or co-op fee, you need to earn more money to qualify for a mortgage. For example, you typically need to make 10% to 15% more monthly gross income to afford a property with and HOA fee.

Simply put, an HOA or co-op fee is basically an extra debt expense that you need to account for when you apply for the loan. The higher your monthly debt burden, the more you need to make to get approved.

Now that you understand the factors that determine how much money you need to make to qualify for a mortgage, the next step is to contact lenders to understand the loan you can afford. The table below shows mortgage rates and fees for leading lenders. We recommend that you shop multiple lenders to confirm their qualification requirements and to find the best loan terms.

Sources

"B3-6-04, Qualifying Payment Requirements."  Selling Guide: Fannie Mae Single Family.  Fannie Mae, April 15 2014.  Web.