How Much Income Do I Need to Get a Home Loan?

Lenders won't approve you for a mortgage if you don't have sufficient income.

Lenders won't approve you for a mortgage if you don't have sufficient income.

Taking out a mortgage helps you make the jump from renting to owning your own home. When you apply, one of the things lenders look at is whether you have sufficient income. However, when figuring out how much you need to make to get approved for a home loan, the size of the mortgage isn't the only thing that matters.

Mortgage Expenses

Lenders look at how your mortgage expenses compare to your pretax monthly income -- a figure called the "front-end ratio." Most lenders don't want your front-end ratio to exceed 28 percent. So, to figure the required income for your home loan, divide your monthly mortgage expenses by 0.28. For example, say your total mortgage expenses are $1,680. Divide $1,680 by 0.28 to find you need at least $6,000 monthly to qualify.

Total Mortgage Costs

When most people think about a mortgage, they only think about the monthly payment to the lender -- but lenders think differently. They know that taking on a mortgage means taking more than just principal and interest. When you buy a home, you also have to pay for homeowner's insurance, property taxes -- and private mortgage insurance if you don't put down at least 20 percent.

Total Debt Expenses

Lenders also look at the so-called "back-end ratio," a figure that measures not only your mortgage costs but also any other debt payments, compared to your income. Lenders typically allow you to spend between 36 and 45 percent of your monthly pretax income. To figure how much that means you need to make, you need to calculate it in a similar way to the front-end ratio. For example, if your total monthly debt costs are $2,000 -- including your mortgage payment -- and your lender will let you spend up to 39 percent of your income, divide $2,000 by 0.39 to find you need about $5,128 of monthly income.

Other Debts

If you have other monthly consumer debt payments, that eats away at the amount of house you can afford. These include things like your student loans, a car loan, and alimony or support you have to pay. However, other monthly costs, like your utilities or your cell phone bill don't count. So, if you're considering applying for a mortgage, it's probably best to put off buying that nice new car until you've been approved -- and you can afford it in your budget.


About the Author

Mark Kennan is a writer based in the Kansas City area, specializing in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."

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