What Are The Income Requirements To Get A Mortgage?

 Many people think you need to make six figures a year to be approved for a mortgage, but that’s simply not the case. In the grand scheme of things, your annual income doesn’t really affect your approval odds. In fact, lenders consider an array of factors along with income to determine a borrower’s eligibility. So, while there is no minimum income threshold, there are ample factors you’ll need to check off before taking a leap. 

What Are The Income Requirements To Qualify For A Mortgage?

Along with income, lenders consider many other factors that contribute to the financial health of a borrower. If you’re looking to get a mortgage, you should make sure you have the following financial staples.

Reasonable Debt-To-Income Ratio

While lenders don’t necessarily look for an income minimum, they do heavily consider your debt-to-income ratio (DTI) when determining eligibility. Your DTI compares your total monthly debt to your gross monthly income.

To find your DTI, divide your total monthly debt by you monthly gross income, then multiply it by 100. So, if you spend $1,000 a month on debt payments and you gross $4,000 a month in income, your DTI is 25%.

Your DTI greatly affects your buying power because it shows mortgage lenders how much house you can afford. The more total debt you have, the less you can afford to spend on housing costs. In order to qualify for a mortgage, most lenders require applicants have a DTI no higher than 43%.

Steady Monthly Income

While you don’t need to make six figures to be approved for a mortgage, you do need to have proof of a steady source of income. Most lenders will require you have a common income which you’ve been receiving for at least 2 years. So, whether you work a 9-to-5 or you’re self-employed, lenders want to see that you make consistent revenue every month.

Lenders will also consider other forms of income to establish eligibility. These alternate qualifying sources include:

• Retirement income
• Child support 
• Dividend/interest income

Other Requirements To Qualify For A Mortgage

Aside from income-based requirements, lenders also look at other factors to determine if it would be safe to lend you a home loan. You can have a low DTI and a steady source of income, but lenders will have a hard time approving you if the following are not in order.

Credit Score

Your credit score is a numerical expression of your creditworthiness. Essentially, it shows lenders a snapshot of your financial responsibility. It will fall somewhere between 300 and 850, with 850 being the best possible score. Things like your total debt usage, payment history and the age of your oldest credit line all make up your credit score. The higher your score, the more likely you are to repay your debts. Mortgage lenders generally require borrowers have a credit score of at least 580.

Down Payment

Prior to closing on a home, you will have to put forth a down payment. Your down payment will be no less than 3% of a home’s sale price, depending on your loan type. The amount you put down will affect your mortgage payments, which consists of your principal, interest, taxes and homeowner’s insurance. The more you put down, the less you’ll be required to pay monthly.

Assets And Cash Reserves 

Lenders will also look at your assets and cash reserves to determine your eligibility. If you have money set aside, lenders can be more certain that you’ll pay back your mortgage if your financial situation changes.

How Much Of Your Income Should Go Toward A Mortgage? 

Only you can decide how much of your income will go toward your mortgage payment. Financial advisors suggest you make three times the cost of your housing payments. However, if you’re hoping to be considered for a conventional loan, most lenders will require you spend no more than 28% of your gross monthly income on housing, and no more than 36% on total monthly debt payments. Also known as the 28/36 rule, this framework can be helpful when you’re budgeting for a house.

Determine Your Required Income With A Mortgage Calculator

While lenders don’t have a minimum income requirement, you can get a rough estimate of the amount of money you might need to make in order to obtain a certain home. By using a mortgage calculator, you can get an idea of how much your monthly mortgage payments will be.

If you’re following the 28/36 rule, calculate 28% of your monthly gross income to see how much mortgage payment you can afford monthly. To do that multiply your monthly gross income by .28.

For example, Marlon makes $6,000 a month in gross income and wants to know how much an affordable monthly mortgage payment should be.

The math looks like this: 6,000 x .28 = 1,680

Marlon can afford to pay a mortgage payment of up to $1,680 a month.

This is just a general rule of thumb, you should also consider the other costs of owning a house and other debts before deciding to take on that monthly payment.

What If Your Income Doesn’t Meet Mortgage Approval Requirements? 

Homeownership requirements can be difficult for many borrowers to meet in the current economy. Rising inflation and stagnant incomes can make saving for even the smallest things difficult, let alone saving for a down payment and the other costs associated with a home purchase. However, you shouldn’t let rising housing prices and high interest rates convince you into thinking you’ll never be a homeowner. If you’re buying a house with a low income, there are steps you can take to improve your mortgage preapproval odds. There are also programs designed to assist you in making your homeownership dreams a reality.

To improve your chances, you should try to:

• Pay off debt: We know this can prove difficult, especially if finances are already tight, but you should try to pay off debt in order to improve your chances. Start with the smaller, more manageable balances first. Doing so will not only improve your credit score, but also lower your DTI, ultimately improving your odds.
• Save for a larger down payment: If you’ve already started saving for a down payment but realize you don’t have enough to afford a home just yet – that’s okay. Take some time to save up more. Doing so will not only lower your monthly mortgage payments, but also improve the chances of a lender approving you for a home loan.
• Consider a first-time home buyer program: Becoming a first time homeowner can be difficult, but there are first-time home buyer programs that could help. Things like down payment assistance programs, low requirement loan types and first-time home buyer education programs are all designed to help you close on your first property. Take advantage of the resources available to you by researching and applying for the programs that make the most sense for your situation.

FAQs On Mortgage Income Requirements

Still have questions about income requirements to obtain a mortgage? Here are a few commonly asked.

Can your mortgage be 50% of your income?

Yes, but it’s not recommended. According to financial advisors, keeping your housing payments under 30% will greatly lower your chances of delinquency. it’s best to keep your housing expenses at a manageable rate.

How much income is required for a $400K mortgage?

It depends on your down payment amount and the cost of your city and state taxes. To get an estimate, head over to the Rocket Mortgage^® mortgage calculator to plug in the numbers. In keeping with the 30% recommendation above, you would want to make at least $92,000. This may vary according due to local taxes and insurance, however.

How much income is required for a $500K mortgage?

Again, it depends on your down payment amount and the cost of taxes in your area. However, if you put down the recommended 20% and don’t factor these numbers in, you should make a gross annual income of about $118,000, which again, may vary based on your local taxes and insurance. To get a more accurate estimate, head over to the Rocket Mortgage calculator to plug in the numbers.

The Bottom Line: Mortgage Income Requirements Are Unique To Each Buyer

While there is no income threshold in order to obtain a mortgage, lenders will look at an array of other factors to decide if you’re eligible. Your credit score, DTI, assets and cash reserves will all be considered during your preapproval and approval process. If you’re not quite on track to obtain a mortgage yet, don’t feel dejected. What’s meant to be will happen in due time, as long as you stay on the right path. Continue saving, paying down debt and improving your credit score in order to make your approval odds higher.

If you’ve read this far and think you could be ready to start the approval process. Let our friends over at Rocket Mortgage get you on the road to homeownership today.