Income requirements to qualify for a mortgage

From conventional to government loans, there are many types of mortgages to suit borrowers with varying credit scores and financial means. While there isn’t a standard baseline income to qualify for a mortgage, in general, you’ll need enough income to repay the loan. Here’s how qualifying for a mortgage works and how your income can impact the decision.

Are there income requirements for a mortgage?

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

Rather than requiring a specific amount of income, mortgage lenders review your credit and financial information to learn two key points:

Lenders evaluate your debt-to-income (DTI) ratio to determine the answers to these questions.

Debt-to-income ratio requirements

Your DTI ratio, also known as the “back-end” ratio, is a measure of gross monthly income against monthly debt payments. To calculate your DTI ratio, divide your monthly debt payments by your gross monthly income.

While there’s no minimum income requirement for a mortgage, there are parameters around the DTI ratio. These vary by loan type:

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

What sources of income qualify for a mortgage?

You can use many different income sources to qualify for a mortgage, including:

• Employment income: Base pay or wages, bonuses, commissions, overtime payments and self-employment income
• 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 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 have, you’ll need to give your lender documentation to support your claims. Here’s a list of common documents needed for a mortgage.

How much of your income should go toward mortgage payments?

Most financial advisors generally recommend following the 28/36 percent rule. This means your monthly mortgage payment and total monthly debts shouldn’t exceed 28 and 36 percent 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 (28 percent of $6,000), and your total debt payments (including the mortgage) should max out at $2,160 (36 percent of $6,000).

Check out Bankrate’s calculator to see how much house you can afford.

Other factors that impact mortgage qualification

Beyond your income and DTI ratio, lenders also review your:

• 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: For a conventional loan, you’ll need at least a 620 FICO score. If you don’t qualify, you might consider an FHA loan, which allows scores as low as 580. The higher your score, the better the interest rate lenders will offer you.
• 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 percent. FHA loans require 3.5 percent, while VA and USDA loans 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 some 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, writer at Bankrate. “One lender required that I submit multiple extra pay stubs. It also 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 for mortgages

A low income doesn’t have to keep you from buying a house. There are a few 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 percent.
• HFA loans: These are loans offered through state housing finance agencies (HFAs). Often they’re geared toward lower- to moderate-income borrowers and have low down payment requirements, competitive interest rates and closing cost or down payment assistance.
• 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 percent.
• VA and USDA loans: Both of these government-guaranteed loans have no down payment requirement for those who qualify.

FAQ about income and mortgage qualification

• What are some strategies to improve your income for mortgage approval?

  Save for getting a better-paying job or taking on a side hustle, it’s not always possible to increase your income. You can still up 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 more 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 lower mortgage amount, making it easier to qualify with your current income.

• Are there income limits for a mortgage loan?

  While there’s no minimum income requirement for mortgage loans, income ceilings apply for some loan types. These include Fannie Mae HomeReady loans, Freddie Mac Home Possible loans and government-backed USDA loans.