What Does My Income Have to Be to Qualify for a Home Mortgage Loan?
If you are planning on purchasing your first home, then there are probably a lot of questions you have about the process and what it takes to qualify. For example, one of your most pressing questions might be – what does my income have to be to qualify for a home mortgage loan?
The answer to this question isn’t always the easiest to pin down because every home buyer is different, and their choice of mortgage product can also play a role.
Minimum Income Qualifications for a Home Loan
The home buying process requires a borrower to meet a wealth of thresholds, from credit scores to debt-to-income ratios and more, but ironically, there is no minimum dollar amount that you need to earn to buy a home. Of course, this doesn’t mean that your income isn’t important. It’s one of the most important things your lender will use to determine your ability to repay your home loan.
As a result, your lender will want to make sure that you make enough money to cover your mortgage payment as well as all your other monthly bills and debt obligations. To get approved for most home loans, the number you want to keep in mind is 28 percent. If you can meet all the other loan qualification requirements and your mortgage payment is determined to be 28 percent of your income or less, then your odds of getting approved by your lender are good.
What Qualifies as Income to a Lender?
Traditionally, a borrower earns income either through a payroll job or self-employment. But these two types of income aren’t the only accepted by lenders. Most lenders will also consider other reliable and regular forms of income, including:
- Military benefits and allowances
- Alimony or child support payments
- Commissions
- Overtime
- Income from investment accounts
- Social Security payments
- Income earned from “side hustles”
The most important thing to lenders is that your income is consistent and that you can prove it with the appropriate documentation. Plus, your lender will want to know that the income streams will continue for at least two more years. For example, if you are divorced and your child is turning 18, then the lender probably won’t consider your child support payments as part of your income total because those payments will be ending soon.
Income Requirements for Employed and Self-Employed Borrowers
It is not hard for lenders to determine income for borrowers who are employed in traditional payroll jobs. All that’s required for employed borrower is to provide the lender with copies of their pay stubs for the last 30 days.
For self-employed borrowers, different documentation is required. At least two years of tax records is the standard requirement because self-employed income can vary from month-to-month. With two years of tax records to compare, a lender can calculate what the borrower’s average monthly income was over that duration. This number is what the lender will use to determine if the borrower meets the 28 percent threshold for approval.
Do Assets Count as Income?
If you have assets, they won’t be factored into your income, but they can still be useful in getting approved for your mortgage. After all, your lender will want to know that you will still be able to meet your loan payment obligations if you run into a financial emergency and this is where your assets will come in.
Assets can be almost anything that you own that has value but most commonly, this includes:
- Checking and savings accounts
- Certificates of deposit (CDs)
- Stocks, bonds, and mutual funds
- IRAs, 401(k)s or any other retirement account you have
To be included in your application, your lender will usually require the appropriate documentation for each of your assets to verify their value.
How Much Home Can You Afford?
There are dozens of different online mortgage calculators you can use to help determine what your mortgage payment could be based on the price of the home you are interested in, the amount of your down payment, and a few other factors. Now that you know you don’t want to 28% of your income going to your mortgage payment, using a mortgage calculator can help you determine how much home you can afford.
