Income requirements to qualify for a mortgage

There are many different types of mortgages to suit borrowers with different credit scores and financial means. But while the standards vary, lenders do assess how much you make when you apply for a mortgage. Here’s how your income can impact your ability to qualify for a mortgage loan.

Are there income requirements for a mortgage?

There’s no single, universal income requirement to qualify for a mortgage. It all depends on the type of loan you’re seeking, the amount you need to borrow and current interest rates.

Lenders do want to confirm that you have a steady, stable source of income, so that your regular monthly payments will remain affordable. But, rather than requiring a specific amount of income, they review your credit history, your debt-to-income (DTI) ratio and other information about your cash flow to figure out if you can afford the mortgage you want.

Debt-to-income ratio requirements for a mortgage

Debt-to-income is a measure of how much you spend versus how much you earn. To calculate your DTI ratio, divide your monthly debt payments by your gross monthly income. Lenders’ requirements for that ratio vary by loan type:

• Conventional loans: No more than 36%, but can potentially go up to 50% with “compensating factors,” like a bigger down payment, higher credit score or substantial reserves
• FHA loans: No more than 43%
• VA loans and USDA loans: No more than 41%

Let’s say you have a monthly income of $6,000. Your debts include a $300 student loan payment, a $200 car payment, a $100 minimum credit card payment, and if approved for your mortgage, a $1,900 housing payment.

In this scenario, your DTI is a bit over 41%. That means you’d be eligible for an FHA loan and right on the cusp of qualifying for a VA or USDA loan.

To qualify for a conventional loan, you’d either need to increase your income by $1,000 per month or meet some of those compensating factors.

What sources of income qualify for a mortgage?

Your employment is likely to be your main source of income, including base pay or wages, bonuses, commissions, overtime payments and the like. However, there are many other income sources that can also help you qualify for a mortgage, such as:

• Schedule K-1: Income and distributions from partnerships, S corporations and estates
• Retirement income: Income from retirement accounts — like a 401(k), IRA or 403(b) — and pension income
• Rental income: Including income from accessory dwelling units, or ADUs
• Disability payments
• Social Security payments
• Dividend or interest income
• Alimony and child support
• Trust income

Whichever type of income you use, you’ll need to document it when you apply for a loan. Here’s a list of common documents needed for a mortgage.

How much of your income should go toward mortgage payments?

When you’re determining how much of your income should go toward your housing costs, most financial advisors recommend following the 28/36 rule. This means your monthly mortgage payment and total monthly debt payments — including your mortgage payment — shouldn’t exceed 28% and 36% of your total gross income, respectively.

For example, if your gross income is $6,000 per month, your mortgage payment should be no more than $1,680, and your total debt payments, including the mortgage, should max out at $2,160.

Other factors that impact mortgage qualification

Lenders also have other home loan qualification criteria, such as:

• Employment record: The requirements vary by lender, but typically, you’ll need to provide evidence of steady employment from the past two years.
• Credit score: The higher your credit score, the better the interest rate lenders will offer you. For a conventional loan, you’ll need at least a 620. If you don’t qualify, you might consider an FHA loan, which allows scores as low as 580 with a 3.5% down payment or 500 with a 10% down payment.
• Credit history: Lenders are interested in your credit history in addition to your credit score. This helps them determine whether you routinely make late payments or have any foreclosures or bankruptcies on your record.
• Down payment: For a conventional loan, the down payment requirement can be as low as 3%. FHA loans require 3.5%, while VA and USDA loans typically don’t require a down payment. Like your credit score, the higher your down payment, the more likely the lender will offer you a better rate.
• Cash reserves: This isn’t a firm requirement, but many lenders want to see that you have enough savings and liquid assets to cover mortgage payments for several months.

“Speaking from personal experience, I switched jobs two months before applying for a mortgage,” says Andrew Dehan, a senior analyst at Bankrate. “One lender required that I submit multiple extra pay stubs. It pushed my partner to leave me off the mortgage, because she had the higher credit score and had been at her job longer. We shopped around and found a lower rate at a bank that didn’t give us nearly as much trouble.”

Low-income loan options

Some programs are actually designed for lower-income buyers and have income qualification limits — you won’t qualify if you make more than the limit. For instance, Fannie Mae’s HomeReady program is open only to applicants who make no more than 80% of their area’s median income (AMI). That would mean if the AMI in your town is $80,000, you can make no more than $64,000 to meet the HomeReady income limits.

Consider the following ways to buy a house with low income:

• Conventional loan programs: Fannie Mae and Freddie Mac back two conventional mortgages for lower-income borrowers: HomeReady and Home Possible, respectively. The minimum down payment is 3%.
• FHA loans: Insured through the Federal Housing Administration, FHA loans have more lenient credit score and DTI ratio requirements than conventional mortgages. The minimum down payment is 3.5%.
• HFA loans: These are loans offered through state housing finance agencies (HFAs). They’re often geared toward lower- to moderate-income borrowers and have low down payment requirements, offer competitive interest rates and include closing cost or down payment assistance.
• VA and USDA loans: If you’re a military veteran, active-duty service member or surviving spouse (for VA loans), or looking to buy a house in an eligible rural area (for USDA loans), these can be good options. Both of these government-guaranteed loans have no down payment requirement for eligible borrowers.
• Down payment assistance programs: These options are specifically designed for lower-income buyers. The majority of them also have income limits, but it’s important to note that these vary widely: What constitutes a low income in San Francisco looks a lot different than it does in San Antonio, for example

Frequently asked questions

• How can I improve my income for mortgage approval?

  Beyond getting a better-paying job or taking on a side hustle, it’s not always possible to increase your income. You can still improve your chances of getting approved for a mortgage by lowering your debt-to-income (DTI) ratio, such as by reducing credit card debt. You can then work toward saving for a larger down payment, either by setting aside funds, getting a gift from family or friends, finding a down payment assistance program or a combination. A bigger down payment means you’ll take out a smaller loan, making it easier to qualify with your current income.

• What’s the minimum income to qualify for a mortgage?

  There are no specific mortgage income requirements or minimums, but if you have a lower income, you may find it difficult in some areas. For example, if you make $4,000 per month and have no other debt, lenders would prefer you spend no more than $1,120 per month on mortgage payments. You could achieve that by making a 3.5% down payment on a $185,000 house — but that would likely be hard to find in many parts of the country.