Income Requirements for a Mortgage

Unless you know something that the rest of the world doesn't, or have a very wealthy benefactor, you're probably going to need an income to purchase a home. The goal is to determine how much income you'll need to satisfy potential mortgage lenders. The more income you can document in relation to the amount you wish to borrow, and the better your overall financial picture, the better your chances of gaining approval.

Income Documentation

When you submit your loan application, the mortgage underwriter (the individual who determines whether you qualify for the loan) will take a close look at your income. To get approval, you will need to be able to document all sources of income that you wish to use. Acceptable documentation sources include W-2 forms, 1099 forms and pay stubs. If you're self-employed, the process can be much more difficult, unless you do work on a contract basis and complete a W-9 form for your "employers."


You will also need to demonstrate that your income is stable. Ideally, you should be employed at your current job for a minimum of two years before applying for a mortgage. If you've changed jobs frequently, you may need to show that the changes resulted in progressive increases in salary and responsibility. If you're considering changing jobs, wait until after the mortgage is approved before making your move.

Debt-to-Income Ratio

Mortgage lenders will want to see that you can afford to make your monthly payments. They will examine your debt-to-income ratio to see if it falls within acceptable limits. To calculate your ratio, the lender will compare your projected monthly housing costs, including your mortgage payment, property taxes and insurance, to your gross monthly income. A standard acceptable debt-to-income ratio in the mortgage industry is when this amount does not exceed 28 percent of your gross monthly income.

Overall Debt

In addition to your debt-to-income ratio, your lender will also take a look at your overall debt picture. In general, lenders want to see that your monthly debt payments for items like credit cards, car payments and other installment loans, do not exceed 36 percent of your gross monthly income. If your debt exceeds 36 percent, seek ways to lower it, such as paying off or consolidating debt, before applying for your loan.

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