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Think about this: You've been saving for years, you know the neighborhood you want, you can picture your furniture in that house down the street. Then you sit down to figure out if you actually qualify and suddenly the math gets fuzzy. How much income do you really need for a mortgage?
Here's what I've learned helping hundreds of borrowers through AmeriSave: there's no single magic number. A teacher in Louisville making $65,000 might qualify for the same loan amount as an accountant in Dallas making $75,000, depending on their debts, down payment, and credit profile. The income question is personal.
Let me walk you through exactly how lenders evaluate your income, what calculations they use, and most importantly, how to figure out what you can realistically afford. No jargon, no runarounds. Just the information you need to move forward with confidence.
There's a misconception floating around that you need to earn six figures to buy a home. Not true. According to data from the U.S. Census Bureau, median household income in the United States was $83,730 in 2024, yet millions of households with lower incomes successfully qualify for mortgages every year.
Lenders don't have a minimum income requirement stamped on their desk. Instead, they ask: "Can this person afford this specific mortgage payment, given their current financial situation?" All factors considered. That's the real question.
The relationship between your income and your debts—that’s what matters. Lenders use something called your debt-to-income ratio to measure this. Think of it as a financial snapshot showing how much of your monthly income goes toward debt payments, including the new mortgage you're applying for.
According to Fannie Mae guidelines, for manually underwritten conventional loans, the maximum total debt-to-income ratio is typically 36% of stable monthly income, though this can extend to 45% with compensating factors like higher credit scores or substantial cash reserves. For loans underwritten through Fannie Mae's Desktop Underwriter system, the maximum allowable DTI ratio can reach 50%.
Different loan types have different standards. FHA loans, backed by the Federal Housing Administration, generally allow debt-to-income ratios up to 43%, according to CFPB guidelines. VA loans for veterans don't have a hard DTI cap but typically use 41% as a benchmark while emphasizing residual income. USDA loans for rural properties also target around 41% DTI.
Let me show you the actual math lenders use. Your debt-to-income ratio is your total monthly debt payments divided by your gross monthly income, expressed as a percentage.
Here's the formula:
DTI = (Total Monthly Debt Payments ÷ Gross Monthly Income) × 100
Your gross monthly income is what you earn before taxes and deductions. Total monthly debt payments include:
Let’s work through a real example. Say you earn $7,000 per month gross income. Your debts include a $350 car payment, $200 in student loans, and $100 minimum credit card payment. You're looking at a home where the mortgage payment would be $2,100 per month.
Total monthly debts: $350 + $200 + $100 + $2,100 = $2,750
Gross monthly income: $7,000 DTI calculation: ($2,750 ÷ $7,000) × 100 = 39.3%
At 39.3%, you'd qualify for most conventional loans and FHA loans. You'd be slightly above the typical VA/USDA benchmark of 41%, but within range depending on other factors. Wait, let me clarify that point about VA/USDA loans. At 39.3%, you'd actually be comfortably under the 41% threshold.
The CFPB provides a straightforward explanation: if you have $2,000 in monthly debt payments and $6,000 in gross monthly income, your DTI is 33%. That's a solid ratio that most lenders view favorably.
Front-end ratio (housing ratio): Only your housing costs divided by gross income. This typically shouldn't exceed 28-33% depending on the loan program.
Back-end ratio (total DTI): All your debts plus housing costs divided by gross income. This is the number I've been discussing, and it's usually the more important one for approval.
Let's get specific. You want to know how much income you need for a $300,000 mortgage, a $400,000 mortgage, or whatever your target is. I'll break this down using current market conditions.
As of November 6, 2025, according to Freddie Mac's Primary Mortgage Market Survey, the average 30-year fixed mortgage rate is 6.22%. I'll use this rate for calculations, along with typical property tax and insurance estimates.
For a $200,000 home purchase with 10% down ($20,000), you'd need a $180,000 mortgage.
Here's the monthly payment breakdown at 6.22% interest:
Using the 28% front-end ratio for housing costs:
Required monthly gross income: $1,481 ÷ 0.28 = $5,289
Annual income needed: $63,468
Using the 36% back-end ratio (assuming no other debts):
Required monthly gross income: $1,481 ÷ 0.36 = $4,114
Annual income needed: $49,368
The realistic income requirement falls between $49,000 and $64,000 annually, depending on your other debts and the specific loan program. If you have $500 in other monthly debts, you'd need the higher end of that range.
For a $300,000 home purchase with 10% down ($30,000), you'd need a $270,000 mortgage.
For a $300,000 home, you're looking at roughly $74,000 to $95,000 in annual income with minimal other debts.
For a $400,000 home purchase with 10% down ($40,000), you'd need a $360,000 mortgage.
Using 28% front-end ratio:
Required monthly gross income: $2,961 ÷ 0.28 = $10,575
Annual income needed: $126,900
Using 36% back-end ratio (no other debts):
Required monthly gross income: $2,961 ÷ 0.36 = $8,225
Annual income needed: $98,700
For a $400,000 home, expect to need between $99,000 and $127,000 annually.
For a $500,000 home purchase with 10% down ($50,000), you'd need a $450,000 mortgage.
Using 28% front-end ratio:
Required monthly gross income: $3,702 ÷ 0.28 = $13,221
Annual income needed: $158,652
Using 36% back-end ratio (no other debts):
Required monthly gross income: $3,702 ÷ 0.36 = $10,283
Annual income needed: $123,396
A $500,000 home typically requires $123,000 to $159,000 in annual income.
Income Required for a $700,000 Mortgage
For a $700,000 home purchase with 10% down ($70,000), you'd need a $630,000 mortgage.
Using 28% front-end ratio:
Required monthly gross income: $5,182 ÷ 0.28 = $18,507
Annual income needed: $222,084
Using 36% back-end ratio (no other debts):
Required monthly gross income: $5,182 ÷ 0.36 = $14,394
Annual income needed: $172,728
For a $700,000 home, you're looking at roughly $173,000 to $222,000 annually.
One of the biggest questions I get: "Does all my income count?" The answer is more nuanced than you might think. Lenders can use many income sources, but they need to verify stability and continuity.
This is the most straightforward. Salaried employees and hourly workers can use their base pay for qualification. According to Fannie Mae guidelines, lenders require income documentation showing stability over at least two years.
For overtime, bonuses, or commissions that make up more than 25% of your income, lenders average these amounts over two years. If you received a $10,000 bonus last year and a $12,000 bonus this year, they'd use $11,000 annually ($917 per month) for qualification purposes.
Getting a mortgage when you're self-employed requires more documentation, but it's absolutely doable. I work with self-employed borrowers regularly at AmeriSave and the key is understanding how lenders view your income.
Lenders need two years of personal and business tax returns. They calculate your qualifying income by averaging your net profit over those two years. Here's where it gets tricky: business deductions that reduce your taxable income also reduce your qualifying income.
Example calculation: Year 1 net profit: $85,000 Year 2 net profit: $92,000 Average annual income for qualification: $88,500 Monthly qualifying income: $7,375
However, certain deductions can be added back to increase your qualifying income:
According to Appendix Q to CFPB Regulation Z, lenders verify self-employment income through tax transcripts obtained directly from the IRS, personal tax returns, and business tax returns for all businesses where the borrower has 25% or greater ownership interest.
Retirement income counts if it continues for at least three years after the mortgage closes. This includes:
For Social Security income specifically, the CFPB Appendix Q requires that payments must continue for at least three years post-closing. Lenders verify this through benefit letters from the Social Security Administration and recent bank statements showing deposit history.
If you own rental properties, lenders can use 75% of the documented rental income for qualification. The 25% reduction accounts for vacancy, maintenance, and management costs.
Fannie Mae guidelines require documentation of rental income stability through lease agreements and a rental history showing the previous 24 months free of unexplained gaps greater than three months.
If you're buying a multi-unit property and plan to live in one unit while renting others, lenders can use the projected rental income from the non-owner-occupied units, typically using 75% of the market rent shown on the appraisal.
Dividend income, interest income, and capital gains can count toward qualification if you document a two-year history of receiving these payments and they're expected to continue.
Court-ordered alimony and child support count as qualifying income under specific conditions. According to CFPB Appendix Q, you must have received regular payments for at least six to 12 months, and payments must continue for at least three years after mortgage closing.
You'll need to provide a copy of the divorce decree, separation agreement, or court order, plus proof of receipt through bank statements or canceled checks.
Each requires specific documentation. The key is proving the income is regular, reliable, and will continue.
Higher credit scores allow lenders to approve higher debt-to-income ratios. Someone with a 780 credit score and a 45% DTI might get approved for a conventional loan, while someone with a 640 credit score would need to keep their DTI under 36%.
But here's the real impact: your credit score affects your interest rate. Using data from current market conditions (November 2025), let's see how this plays out on a $300,000 mortgage.
Credit Score 760-850 (Excellent):
Interest rate: 6.00%
Monthly P&I payment: $1,798
Total interest over 30 years: $347,280
Credit Score 680-699 (Good)
Interest rate: 6.50%
Monthly P&I payment: $1,896
Total interest over 30 years: $382,560
Credit Score 620-639 (Fair)
Interest rate: 7.25%
Monthly P&I payment: $2,046
Total interest over 30 years: $436,560
The difference between excellent and fair credit is $248 per month and $89,280 in additional interest over the life of the loan. That higher payment also means you need more income to qualify.
At 6.00% interest, you might need $75,000 annual income. At 7.25% interest for the same house, you might need $82,000 annual income just because of the credit score difference.
The size of your down payment directly impacts how much income you need to qualify. A larger down payment reduces your loan amount, lowers your monthly payment, and eliminates private mortgage insurance if you put down 20% or more.
Let me show you with a $300,000 home purchase example.
Scenario 1: 3% Down Payment ($9,000)
Loan amount: $291,000
Monthly P&I at 6.22%: $1,787
PMI at 0.85% annually: $206
Property tax & insurance: $450
Total monthly payment: $2,443
Income needed at 36% DTI: $81,600 annually
Scenario 2: 10% Down Payment ($30,000)
Loan amount: $270,000
Monthly P&I at 6.22%: $1,659
PMI at 0.50% annually: $113
Property tax & insurance: $450
Total monthly payment: $2,222
Income needed at 36% DTI: $74,064 annually
Scenario 3: 20% Down Payment ($60,000)
Loan amount: $240,000
Monthly P&I at 6.22%: $1,475
PMI: $0 (eliminated)
Property tax & insurance: $450
Total monthly payment: $1,925
Income needed at 36% DTI: $64,167 annually
That's a $17,433 annual income difference between putting 3% down versus 20% down. The lower monthly payment means you qualify with less income.
According to Fannie Mae, while 3% down payment options exist, borrowers with larger down payments often receive better interest rates and more favorable terms, which further reduces income requirements.
Financial advisors and lenders often reference the 28/36 rule as a guideline for affordable homeownership. Understanding this rule helps you determine what you can truly afford, not just what a lender might approve.
Let's apply this to someone earning $85,000 annually ($7,083 monthly):
28% for housing: $7,083 × 0.28 = $1,983 maximum housing payment
36% for total debt: $7,083 × 0.36 = $2,550 maximum total debt payments
If this person has $400 in car payments and $150 in student loans, their maximum housing payment would be: $2,550 - $400 - $150 = $2,000 monthly housing payment
The lower number wins. Since $1,983 is less than $2,000, their maximum affordable housing payment is $1,983 per month.
Working backward from that payment, assuming 6.22% interest, property taxes of $300/month, insurance of $150/month, and PMI of $113/month:
Total payment: $1,983
Minus property tax, insurance, PMI: $1,983 - $300 - $150 - $113 = $1,420
Available for principal and interest: $1,420
At 6.22% interest over 30 years, a $1,420 monthly P&I payment supports a loan amount of approximately $231,000. Add the typical 10% down payment ($25,667), and this borrower can afford a home priced around $257,000 while staying within the 28/36 rule.
The CFPB notes that while 36% DTI is generally recommended, many lenders approve loans with higher ratios. The rule is a guideline for comfortable affordability, not an absolute limit.
First-time buyers often worry they don't have enough income, but there are programs specifically designed to help. The definition of "first-time home buyer" is broader than you think: anyone who hasn't owned a home in the past three years qualifies for most programs.
Fannie Mae's HomeReady and Freddie Mac's Home Possible programs allow 3% down payments and accept income from non-borrowing household members for qualification. However, these programs have income limits: borrowers cannot earn more than 80% of the area median income (AMI).
For example, if the AMI in your area is $90,000, you can earn up to $72,000 and still qualify for these programs. The limit varies by location, so a high-income area like San Francisco has different limits than Louisville, Kentucky.
State housing finance agencies (HFAs) offer additional programs with competitive rates, down payment assistance, and flexible underwriting. These programs often have income limits and first-time buyer restrictions, but the savings can be substantial.
Doctors completing residency, lawyers making partner, or sales professionals with highly variable commission income face unique challenges. Lenders want to see income stability, but your paychecks might fluctuate significantly.
For commission-based income exceeding 25% of total earnings, lenders average your last two years of earnings. If you earned $120,000 in commissions last year and $180,000 this year, they'll use $150,000 annually ($12,500 monthly) for qualification.
For professionals with bonuses, lenders need proof the bonus is consistent and likely to continue. A one-time signing bonus won't count, but annual performance bonuses that you've received for three consecutive years will.
When married couples or partners buy together, lenders combine incomes for qualification. This opens up significantly higher purchase prices.
Partner A income: $60,000 annually ($5,000 monthly)
Partner B income: $55,000 annually ($4,583 monthly)
Combined monthly income: $9,583
At 36% DTI with no other debts: $9,583 × 0.36 = $3,450 maximum housing payment
This combined income supports a much larger mortgage than either person could qualify for individually. However, both borrowers' credit scores and debt obligations factor into approval. The lower credit score typically determines the interest rate offered.
Non-borrowing household member income can also help in some programs. If your adult child lives with you and contributes to household expenses, that income might count toward qualification for HomeReady or Home Possible loans, even if they're not on the mortgage.
Self-employed borrowers face the most scrutiny because income verification is more complex. Lenders need to see not just that you make money, but that your business is stable and profitable over time.
For borrowers with multiple businesses, lenders need tax returns for each business where you own 25% or more. They'll analyze your Schedule C (sole proprietors), Form 1065 (partnerships), or Form 1120S (S-corporations).
A realistic example:
Gross business income: $180,000
Business expenses: $75,000
Depreciation: $15,000
Net profit on Schedule C: $90,000
Lender's calculation:
Net profit: $90,000
Add back depreciation: +$15,000
Qualifying income: $105,000 annually ($8,750 monthly)
If you had a profitable second business:
Business 2 net profit: $25,000
Total qualifying income: $130,000 annually ($10,833 monthly)
The challenge for self-employed borrowers is balancing tax strategy with mortgage qualification. Taking every possible deduction minimizes taxes but also minimizes qualifying income. Many self-employed borrowers need to plan 2-3 years ahead, keeping this balance in mind.
Where you buy dramatically affects income requirements because of property taxes, insurance costs, and home prices. Let me show you what I mean with specific examples.
In expensive markets like San Francisco, Seattle, or New York, you need substantially higher income for the same size home. A modest 1,500 square foot home might cost $800,000 or more.
For an $800,000 home purchase with 10% down in San Francisco:
Loan amount: $720,000
Monthly P&I at 6.22%: $4,422
Property tax (California average 1.25%): $833
Homeowners insurance (higher in cities): $300
PMI: $300
Total monthly payment: $5,855
Income needed at 36% DTI: $195,500 annually
Compare this to a similar home in Louisville, Kentucky priced at $300,000:
Loan amount: $270,000
Monthly P&I at 6.22%: $1,659
Property tax (Kentucky average 0.85%): $213
Homeowners insurance: $150
PMI: $113
Total monthly payment: $2,135
Income needed at 36% DTI: $71,167 annually
That's a $124,333 income difference for comparable homes in different markets.
Property taxes vary dramatically by state and even by county. These differences directly affect your required income.
According to Tax Foundation data (2024), states with the highest property tax rates include:
That $548 monthly difference means you need an additional $18,267 in annual income to qualify in New Jersey compared to Hawaii (using 36% DTI).
Homeowners insurance costs vary based on location, climate risks, and local construction costs. Coastal areas face higher premiums due to hurricane risk. Areas prone to wildfires or earthquakes pay more.
According to the National Association of Insurance Commissioners (NAIC) data, average annual homeowners insurance premiums by state:
The difference between Florida and Hawaii insurance costs is $225 per month. To qualify for the same home price, a Florida buyer needs an additional $7,500 in annual income compared to a Hawaii buyer, just due to insurance costs.
If you're close to qualifying but not quite there, you have several options to improve your situation.
Paying Down Existing Debt
This is often the fastest way to improve your DTI ratio. Eliminate high monthly payments to free up room for a mortgage payment.
Current situation:
Monthly income: $6,500
Current debts:
Car loan $400, credit cards $300, student loans $250
Total current debt: $950
DTI if adding $1,800 mortgage: ($950 + $1,800) ÷ $6,500 = 42.3% (too high for conventional)
After paying off $8,000 in credit card debt:
Monthly income: $6,500
Current debts: Car loan $400, student loans $250 Total current debt: $650
DTI with same $1,800 mortgage: ($650 + $1,800) ÷ $6,500 = 37.7% (approved)
Strategic debt payoff focuses on accounts with the highest monthly payments, not necessarily the highest balances. Paying off a $3,000 personal loan with a $275 monthly payment improves your DTI more than paying off $5,000 in student loans with a $100 monthly payment.
If you get a raise, the timing matters. Lenders verify employment and income right up to closing. A raise that appears on your pay stubs before you apply will count. A promised raise that hasn't taken effect yet won't.
Some loan programs allow a non-occupant co-borrower, someone who won't live in the home but goes on the loan with you. And this is typically a parent or relative who wants to help you qualify.
The co-borrower's income counts toward qualification, but their debts also count. If your parent has substantial income but also a mortgage, car payments, and other debts, adding them might not help as much as you'd expect.
They're generally not allowed on VA or USDA loans, which have occupancy requirements for all borrowers.
Different loan programs have different income and qualification requirements. Switching programs can make the difference between approval and denial.
FHA loans allow higher DTI ratios (typically 43%, sometimes higher) and lower credit scores (580 minimum for 3.5% down). If you're being rejected for a conventional loan due to a 44% DTI, you might qualify for an FHA loan.
VA loans don't have a strict DTI limit. Instead, they use residual income requirements, calculating how much money you have left after paying all debts and living expenses. Some borrowers with high DTI ratios on paper still qualify for VA loans because they have adequate residual income.
Non-QM (Non-Qualified Mortgage) loans don't follow standard Fannie Mae or Freddie Mac guidelines. These loans might accept:
The trade-off is typically a higher interest rate and larger down payment requirement.
I've seen borrowers make these mistakes repeatedly, so let me save you the trouble.
Lenders use gross income (before taxes and deductions), not take-home pay. If you earn $75,000 annually but only take home $55,000 after taxes and 401(k) contributions, use the $75,000 figure for DTI calculations.
This trips up a lot of borrowers who budget based on take-home pay. You might feel like you can't afford a $2,100 mortgage payment because your take-home is only $4,200 monthly. But lenders see your $6,250 gross monthly income and approve you because $2,100 is only 33.6% of gross income.
Income qualification isn't just about monthly cash flow. Most loan programs require cash reserves after closing, money left in the bank after you pay your down payment and closing costs.
Conventional loans typically require 2-6 months of reserves (2 months of mortgage payments for a primary residence, more for investment properties or multi-unit homes). FHA loans don't strictly require reserves, but having them strengthens your application.
Example:
Home price: $350,000
Down payment (10%): $35,000
Closing costs (est.): $10,500
Cash needed at closing: $45,500
If you have exactly $45,500 saved, you'll have zero reserves after closing. Many lenders want to see at least $5,000-$10,000 remaining. Budget accordingly.
Homeowners association fees are part of your housing payment for DTI calculations. If you're looking at condos or townhomes with $300 monthly HOA fees, that's $3,600 annually that must be included in your debt ratios.
A $1,800 mortgage payment with $300 HOA fees is actually a $2,100 total housing payment for qualification purposes. Many buyers forget this and get surprised when they can't qualify for as much as they expected.
Taking on new debt right before closing can kill your loan approval. I've seen it happen: buyer gets approved, then finances a $40,000 car with a $650 monthly payment two weeks before closing. The new debt pushes their DTI over the limit and the loan gets denied.
Lenders pull credit again right before closing. Any new credit cards, auto loans, or personal loans can change your DTI and jeopardize approval. Wait until after you close to finance that new furniture or car.
Just because you can get approved at 45% DTI doesn't mean you should. At that level, nearly half your income goes to debt payments. That leaves little room for savings, emergencies, or quality of life expenses.
The CFPB generally recommends keeping DTI below 36% for comfortable homeownership. Going higher increases financial stress and reduces your ability to handle unexpected expenses.
Let's talk paperwork. Lenders need extensive documentation to verify your income and financial situation. Having everything organized speeds up the process.
The IRS Form 4506-C is required for all borrowers. This form authorizes the lender to request tax transcripts directly from the IRS to verify the accuracy of your tax returns. According to Fannie Mae guidelines, transcripts are mandatory to combat fraud and ensure income accuracy.
Income stability matters as much as income amount. Lenders want to see that you've been earning consistently and will continue earning in the future.
Most lenders require at least two years of employment history. This doesn't mean you need to be at the same job for two years, it means you need to show continuous employment in the same field or industry.
Changing jobs while applying for a mortgage is risky but not impossible. The key factors:
Staying in the same field: If you're a teacher moving from one school district to another, that's usually fine. You'll need an offer letter showing your new salary, start date, and employment terms.
Promotion or advancement: Moving to a higher-level position in the same company or field is viewed positively. Document the increase in income with an offer letter.
Career change or industry switch: This is problematic during mortgage processing. Lenders want to see income stability, and switching from nursing to sales, for example, raises concerns about income continuity.
According to CFPB Appendix Q, when a borrower starts a new job, the creditor must verify employment and income through pay stubs and a VOE. If the loan closes more than 60 days before the borrower starts the new job, the income doesn't qualify.
If you must change jobs before closing, tell your loan officer immediately. They'll advise on documentation needed and whether the change affects your approval.
For self-employed income to count, you need two years of tax returns showing business income. Recent business owners (less than two years) generally can't use self-employment income for qualification unless they were employed in a similar position before starting their business.
Example: A teacher who taught for five years, then started a tutoring business, might qualify after just one year of self-employment because the businesses are related. An accountant who quits their corporate job to start a landscaping business would need two full years of tax returns showing landscaping income.
The property you're buying affects your income requirements because lenders view different property types as carrying different levels of risk.
These are the easiest to finance and typically have the most lenient qualification requirements. Fannie Mae's maximum DTI of 45-50% (with automated underwriting approval) applies to single-family primary residences.
Condos require extra underwriting because the HOA's financial health affects your home's value.
Income requirements are similar to single-family homes, but you must include HOA fees in your housing payment for DTI calculations. Monthly HOA fees of $400 mean you need an extra $13,333 in annual income to qualify (at 36% DTI).
Buying a duplex, triplex, or fourplex where you'll live in one unit and rent the others requires higher reserves and more documentation. However, you can use projected rental income from the non-owner-occupied units for qualification.
Lenders typically use 75% of market rent (shown on the appraisal) for the rental units.
For a triplex where you'll live in one unit and rent two units at $1,200 each:
Projected monthly rental income: $1,200 × 2 units = $2,400
Lender's qualifying rental income: $2,400 × 0.75 = $1,800
This $1,800 offsets the mortgage payment for DTI calculations. If your total mortgage payment is $3,500 but you have $1,800 in rental income, the net housing payment is $1,700 for qualification purposes.
Reserve requirements are higher for multi-unit properties, typically 3-6 months of mortgage payments must remain in the bank after closing.
Non-owner-occupied investment properties have the strictest income requirements:
You cannot use projected rental income for a property you've never rented. If you're buying your first investment property, lenders calculate DTI based on the full mortgage payment without any rental income offset.
After you have rental history (tax returns showing Schedule E income), lenders will use 75% of documented rental income for future investment property purchases.
Income requirements for manufactured homes are similar to site-built homes, but loan programs are more limited. The home must be permanently affixed to land you own, classified as real property rather than personal property.
FHA loans work well for manufactured homes meeting specific criteria. Conventional loans are available but with stricter requirements.
Some programs are made just for borrowers with low incomes, but they have limits on how much money they can make.
Fannie Mae and Freddie Mac both let borrowers put down 3% of the home's value, but they only let borrowers make 80% of the area's median income (AMI).
San Francisco AMI: $141,300; HomeReady limit: $113,040
You can't get these programs if you make more than these limits in your area. But the programs do have some benefits:
Most people who get FHA loans don't have to worry about how much money they make. You can get an FHA loan no matter how much money you make. But FHA does have maximum loan limits that are different in each county.
If the house you want costs more than the FHA limit in your area, you'll need either a jumbo FHA loan or a regular loan.
USDA loans are only for rural and suburban areas that the USDA has chosen. These loans don't require a down payment, but they do have strict income limits.
For example, the USDA limit for a family of four in a rural Kentucky county with a median household income of $63,000 is $72,450.
The property must be in a place that is eligible. Not just remote rural areas, but also many suburban communities qualify. To see if your desired location qualifies, check the USDA eligibility map online.
There are no income limits for VA loans. But they look at more than just DTI ratios; they also look at residual income. After you pay your mortgage, debts, taxes, and estimated living costs, what's left is your residual income.
The VA says that the amount of residual income needed depends on where you live and how big your family is. For a family of four living in the Midwest:
If your residual income meets the requirements, you might still be able to get a VA loan even if your DTI is 45%. On the other hand, if you don't have enough leftover income, you might not qualify even if your DTI is 40%.
Getting preapproved shows sellers that you mean business and can afford it. The process of checking income begins with preapproval and ends with closing.
Prequalification is not formal. You tell a loan officer basic things about your finances, like how much you make, how much you owe, and what you own. They then give you an estimate of how much you can borrow. There is no proof of any documents. Sellers don't care much about prequalification letters.
The lender looks over your file and sends you a preapproval letter that tells you how much money you can borrow. This is what real estate agents and sellers want to see.
Our digital preapproval process at AmeriSave makes this easy and quick. We often give decisions in hours instead of days.
To make sure the information is correct, lenders check your income with more than one source.
It's easy to check for W-2 employees. Lenders check your income against your pay stubs, W-2s, and tax returns. They call your boss to check on your job status and income.
It's harder to verify for borrowers who are self-employed. Lenders look at your tax returns line by line and use certain formulas to figure out your qualifying income. They may ask for more paperwork, such as CPA letters or profit and loss statements.
Preapproval doesn't mean you're approved. There are a few things that can change your income qualification between preapproval and closing:
Fannie Mae says that if a borrower reveals or a lender finds out about more debt or less income after underwriting, the loan must be re-underwritten if the new information makes the DTI ratio go above the allowed limits.
Not everyone can fit their money problems into neat categories. Let me talk about some problems with income that are unique.
Late payments, bankruptcies, and foreclosures hurt more than just your credit score. They also affect when and which loan programs you can get.
How long do you have to wait after filing for bankruptcy?
Chapter 7 bankruptcy: 4 years for regular loans and 2 years for FHA loans
During the waiting periods, work on improving your credit and making more money. When you do apply, you will have to explain the bankruptcy and show that your finances are better now.
People who work in restaurants, do landscaping, or teach on 9-month contracts, or anyone else who only works part-time during certain times of the year, are more likely to be looked at closely. To get an accurate average of your income, lenders need to see a two-year history of seasonal work.
For a teacher who makes $52,000 in 9 months, the annual income is $52,000 and the monthly average is $4,333 (calculated by dividing the annual income by 12, not 9).
For a seasonal landscaping business, the first year brought in $68,000, the second year brought in $74,000, and the average yearly income was $71,000. To qualify for a loan, you need to make $5,917 a month.
The most important thing is to show that this pattern of income is stable and happens again and again, not just once.
Strategic planning can help when one person makes a lot more money than the other. Think about whether both people should be responsible for the loan.
For example, Partner A has a credit score of 780 and makes $95,000 a year. Partner B has a credit score of 640 and makes $35,000 a year.
Scenario 1: Both are on loan. Their combined income is $130,000 a month, which means they owe $600. Their mortgage is $2,400, which means they owe $3,000 in total. Their DTI is 27.7%, and their interest rate is probably 6.75% (based on their lower 640 score).
Scenario 2: Only Partner A on loan Income: $95,000 a year → $7,917 a month Debts: $0 (Partner B's debts don't count) With a $2,400 mortgage: $2,400 total debts DTI: 30.3% Interest rate: Probably 6.10% (based on 780 score)
Partner A might be able to get a better rate on their own, even though their combined income is higher. This is because their credit score is different. Try both scenarios to see which one gives you better terms.
Permanent residents (those with green cards) can get mortgages just like U.S. citizens. Along with proof of income, you'll need to show your permanent resident card or visa paperwork.
Non-permanent residents with work visas can also qualify, but the rules are stricter:
DACA recipients and people with Employment Authorization Documents (EADs) can get FHA loans if their EAD is good for at least a year from the date they apply for the loan and they can show that they are likely to renew it.
Some government assistance programs can be counted as income when applying for a mortgage. Some do, but others don't.
The difference is whether the income is steady and long-term. Benefits that are likely to last for at least three years usually count toward qualification.
The idea of income qualification and the idea of home affordability are related, but they are not the same. You might be able to get a $500,000 mortgage, but should you?
Lenders will only give you money if you can make the monthly payment. They don't think about:
A payment that brings your DTI to 45% leaves almost no room for these necessary costs. Most financial advisors say that even if lenders will let you borrow more, you should keep your housing costs below 28% of your gross income.
When figuring out if you can afford something, don't just look at your mortgage payment.
For repairs and upkeep, a good rule of thumb is to set aside 1–2% of the home's value each year. For a $300,000 home, that's $3,000 to $6,000 a year, or $250 to $500 a month.
Utilities like heating, cooling, water, sewage, trash collection, and electricity can cost between $250 and $500 a month, depending on the size and location of the home.
HOA fees: These range from $50 to $500 or more per month, depending on the amenities.
Lawn care and landscaping: If you don't do it yourself, expect to pay $100 to $300 a month during the growing season.
Homeowner's insurance deductible and out-of-pocket costs: When something breaks, you'll have to pay for things that aren't covered by insurance.
When you add these up, your real monthly housing costs could be $500 to $1,000 more than just your mortgage payment. Make plans accordingly.
Necessary costs of living, like groceries, gas, utilities, phone, and insurance
What is left over can be used for housing and other expenses. Don't put all of your extra money into housing. Things happen in life. Cars stop working. Kids need to get braces. There are leaks in the roofs.
A comfortable housing budget gives you room to breathe. If you can get $2,500 a month but only feel comfortable with $2,000, trust your gut. You know more about your money than any lender does.
If you choose the right lender, things will go more smoothly. This is what to look for and how to stand up for yourself.
AmeriSave's digital platform makes the whole process clear by giving real-time status updates and clear documentation requirements.
A rate lock locks in your interest rate for a set amount of time, usually 30 to 60 days. You're safe if rates go up during that time. If rates go down, you usually have to keep the higher rate unless you have a float-down option.
We offer rate locks at AmeriSave that are free of charge and don't change your locked rate. This protects your price while you shop for a home and finish the buying process.
Don't lie about your income or hide your debts on your application. This is mortgage fraud, and it can lead to criminal charges, the cancellation of your loan, and damage to your credit history that lasts for a long time.
The mortgage business is always changing. Knowing about recent changes will help you get around in the current situation.
The 43% DTI Hard Cap is no longer in effect.
The CFPB got rid of the strict 43% debt-to-income limit for Qualified Mortgages in 2021. Instead, it put in place pricing-based limits. If other factors (like credit score, reserves, and down payment) are strong, this change lets lenders approve borrowers with higher DTIs more easily.
The CFPB's 2021 advice says that the General QM Final Rule replaces the DTI requirement with price-based thresholds. This means that lenders have to think about DTI or residual income, but they don't have to set a specific maximum.
More and more non-QM lenders are offering programs for borrowers who don't fit the usual mold:
Loans for gig workers, like Uber drivers, freelancers, and contract workers
These programs usually cost more (higher rates and bigger down payments), but they give people who don't make a lot of money a way to buy a home.
For many borrowers, automated systems now check their employment and income electronically. Lenders don't need to ask for pay stubs and W-2s anymore. They can get this information directly from third-party services with your permission.
You have to choose to use electronic verification for this to work faster. Some borrowers would rather give documents by hand so they can keep control of their information.
One of the most important financial choices you'll make is buying a house. Knowing how much money you need to make helps you set realistic goals and get ready properly.
There are a lot of things that affect how much money you need: the price of the house, your debts, your down payment, your credit score, and the loan program you choose. There is no one answer, but you now have the tools to figure out what works best for you.
Get preapproved before you start looking for a house. This tells you exactly how much you can spend and shows sellers that you're a serious buyer. Our simple digital process at AmeriSave makes getting preapproved quick and easy.
Keep in mind that being able to get a loan and being able to pay it back comfortably are not the same thing. Make sure your budget has room for savings, emergencies, and a good quality of life. A good home is one you can afford and enjoy, not one that makes you go broke.
To begin, figure out your debt-to-income ratio based on your current debts. Don't just look at what you might be able to afford; figure out what monthly payment you can make. Then go back and figure out a reasonable price range for a home.
Make a plan with this information if you're not quite ready yet. Pay off your debts to raise your DTI. Save more money so you can make a bigger down payment. Improve your credit score. Every improvement makes it easier to qualify and often gets you better terms.
The first step to owning a home is figuring out how much money you have and what you need to do to get there. You took the first step by finding out how income requirements work. The next step is to do something.
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