There is no exact amount. What you need depends on the loan’s amount, interest rate, and your monthly expenses. In other words, you need to prove that you make enough to cover your monthly mortgage payments. And “enough” will vary by person.
What qualifies as income?
Assuming you’re applying for a standard conforming loan, the list of what constitutes acceptable income is fairly extensive. Beyond your salary, some of the other sources of income your lender might consider include:
- Commissions
- Overtime
- Military benefits and allowances
- Alimony payments
- Investment income
- Social Security income
- Child support payments
You might also be able to include restricted stock units (RSUs) as part of your income, depending on the lender.
All this applies if you’re self-employed, as well. But self-employed borrowers will need to provide additional documentation and further proof that their business is profitable and will continue to be profitable.
What qualifies as enough income?
The most important factor is not necessarily the amount of income you make, but whether it’s consistent, and whether you are able to pay off debt.
Lenders look at how much debt you currently have, and the likelihood that you will pay it off in the future. This is represented by your debt-to-income ratio or DTI. Even if you receive a substantial income, a high DTI tells lenders that you have serious financial difficulties and are unlikely to be able to repay what you owe. This is a warning to not loan you any more money. A low DTI, however, would signify that you are financially stable and capable of taking on additional debt.
The Consumer Financial Protection Bureau recommends a DTI of 43% or less in order to qualify for mortgage loans. But realistically, lenders prefer a DTI of 36% or less.
To calculate your debt-to-income ratio, divide all your monthly debt (i.e. car loans, credit card payments, investment loans, rent, property taxes, homeowner association fees, etc.) by your monthly gross income (before taxes). To make that number into a percentage, you then multiply it by 100.
For example, let’s say your rent and other monthly expenses amount to $2,000. And your monthly gross income is $3,500. 2,000 divided by 3,500 is 0.57. If we multiply that by one hundred, your DTI becomes 57%.
Your monthly income and DTI are just two factors that lenders look at when you apply for a mortgage. Your credit score and the down payment are also important factors. And different lenders will calculate income in different ways. Compare multiple offers to find a loan and lender that works best for your situation.
