If you are currently applying for a home loan, you can use our mortgage income calculator to estimate your chances of qualifying. This tool tells you how much you can afford to spend on a house based on your income and how much you need to make to be approved.
When assessing loan applications, lenders consider borrowers’ income to ensure they can shoulder the costs of financing a home. If you don’t meet the income requirements, you likely won’t qualify for the loan.
Income for mortgage underwriting includes all sources of regular and self-employed income. This calculator incorporates lender preapproval standards for debt-to-income ratios and gross income, so you can get a good view of your chances of qualifying.
For instance, if you make $80,000 a year, our calculator tool can give you a sense of what you can spend on a monthly mortgage payment and the total home price.
Mortgage income calculator tool
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Enter all sources of income into the boxes, including wages, salary, self-employment income, bonuses, and Social Security payments. The calculator will then calculate your gross monthly income (income before mandatory expenses) and estimate your DTI for mortgage qualification.
How lenders calculate an income for a mortgage
Exact income calculations depend on the specific lender, but the essentials are mostly the same.
Here are a few important things to keep in mind.
Gross vs. net income
Lenders look at your gross income, which is your total annual income before taking out taxes and other mandatory contributions. This is different from your net income, which is income left over after expenses.
Stable and verifiable income
Lenders want to see that you have a stable and verifiable income. Generally, you must show at least two years of employment history to count as stable.
Types of income included
Lenders look at all regular sources of income, including but not limited to:
→ Salary and wages
→ Self-employment (with at least two years of income history)
→ Commissions, overtime, and bonuses
→ Rental income and other non-earned income
→ Social Security payments, alimony, unemployment/disability benefits
Averaged and grossed-up income
Averaging and grossing up are two ways that lenders can calculate different types of income to determine your total qualifying gross income:
Averaging: With averaging, the lender looks at a length of income history (usually the past two years) to determine an average income for that period. Averaging is the typical method to calculate variable income from sources like fluctuating work hours, bonuses, overtime, and commissions.
Grossing-up: Certain types of non-taxable income, such as child support, can be “grossed up” so lenders can account for the income’s estimated pre-tax value. For example, FHA loans allow you to gross up non-taxable income by up to 15% — e.g., you can list $1,000 in child support income as $1,150. Lenders gross up non-taxable income so they can more accurately compare it to taxable income.
How your income affects mortgage qualification
Lenders look at your income because they want to make sure you can handle the monthly burden of mortgage payments. Most commonly, lenders look at your debt-to-income ratio.
Debt-to-income (DTI) ratio
Your DTI ratio is equal to your total monthly debts divided by your gross monthly income. The ratio is usually expressed as a percentage and tells you how much of your monthly income goes to covering debts. You can think of DTI as a measure of how “debt-burdened” you are.
Lenders have DTI limits that put an upper ceiling on how much debt they will tolerate, but limits depend on the type of loan:
→ Conventional loans: DTI ≤ 43%–50%
→ FHA loans: DTI ≤ 43% (up to 56.9% with compensating factors)
→ VA loans: No max DTI, VA residual income requirements
→ Rural (USDA) loans: 41%
For example, if your monthly income is $8,000, and your total monthly debt obligation is $3,200, your DTI ratio would be $3,200/$8,000 = 0.4 ≈ 40% — in range for most types of loans.
Debt that is accounted for in the calculation includes housing costs, student loans, credit card debt, and other mandatory deductions.
When estimating your mortgage approval odds, you typically want to follow the 28/36 rule.
28/36 rule. You should spend no more than 28% of your income on housing costs and no more than 36% of your income on all debts.
So, for example, if your monthly income is $8,000, your monthly housing costs (mortgage payment, insurance, and taxes) should not exceed $2,240 ($8,000 x 28%), and your total monthly debts should not exceed $2,880 ($8,000 x 36%).
DTI is not the final word; however, income type and stability can also impact qualification chances. If your income fluctuates heavily, lenders may require a lower DTI maximum to make up for the additional risk.
Mortgage income examples
Let’s take a look at some specific examples with numbers. These figures are all estimations for a 30-year fixed loan at 7% interest using a 36% DTI maximum limit:
→ For a $350,000 house, you would need to make an estimated $9,951 a month to meet qualification requirements.
→ For a $400,000 house, you would need to make at least $10,725 a month to meet mortgage qualification requirements.
→ For a $500,000 house, you would need to make at least $12,537 a month to meet mortgage qualification requirements.
Keep in mind that these numbers are just estimates and will vary based on the interest rate, credit score, and other financial factors. The 36% limit is just a guideline, and lenders are often willing to accept a higher DTI ratio if you compensate with a higher credit score, larger down payment, or other factors.
Tips for improving your qualifying income
Qualifying income is one of the most important mortgage approval factors, so maximizing your income can improve your odds.
Here are some strategies you can try to boost your income and chances of approval:
→ Add a co-borrower: Adding a co-borrower to your loan, like a spouse or partner, can increase your qualifying income and the chances of approval.
→ Pay down high-interest debt: High-interest debt has the largest impact on your DTI, so paying off debts can put your ratio under the qualifying limit.
→ Making a larger down payment: If you have the cash to spare, consider making a larger down payment. A larger down payment decreases the loan amount and monthly payments, which could put your income into qualifying ranges.
→ Document secondary income: Make sure you count all regular sources of income, including income from side gigs or regular payments like child support. Investment and interest incomes also factor into mortgage qualification.
→ Correct credit report errors: Lenders may be willing to accept a higher DTI if you have a comparatively higher credit score. Correcting any errors on your report could bump your score above the required threshold.
→ Choose the right loan type. Different loan types have different requirements, so you may have better chances of qualification by shopping around. For instance, FHA and VA loans usually allow for higher DTI ratios than conventional loans require.
Mortgage income vs. affordability calculators—what’s the difference?
Mortgage income and affordability calculators are used for the same purpose, but there is a subtle difference.
Affordability calculators tell you how much income you need to afford a house of a given price. You put in the house price first, then the calculator spits out the appropriate income range.
A mortgage income calculator is different. Our calculator starts with your income, then tells you how much house you can afford. By adding your income first, you can get a better idea of which housing price range you can feasibly pay for.
This allows you to narrow your search to properties you’d have the highest chance of qualifying for.
Next steps
Knowing how to calculate your mortgage income can give you a decent idea of your odds of mortgage approval. When using an income calculator for a mortgage, make sure you include all appropriate sources of income and consider how averaging and grossing up can impact reported amounts.
By checking to see if you prequalify, you can save time on preapproval and avoid difficulties accessing financing. If you are unsure, we recommend talking with a financial professional to assess your income and chances of qualification.
Compare agents with Clever. You may also qualify for cash back on closing!
FAQ
How do lenders verify income for a mortgage?
Lenders look at financial documents like pay stubs, W-2s, tax returns, and other income statements to verify your mortgage income. Lenders may also contact recent and current employers for additional information.
What counts as qualifying income?
Lenders consider most consistent sources of regular income, including regular salary/hourly pay, bonuses, interest, dividends, unemployment/disability benefits, and alimony/child support payments.
Can I include bonus or commission income?
Yes, lenders will count bonuses or commissions toward your income as long as you demonstrate that they are a regular source of stable income.
How many years of income history do I need?
Lenders generally require you to have at least two years of stable income history to qualify for a mortgage. Lenders may require a longer income history depending on your employment—e.g., freelancing or contract work.
How much do I need to make to afford a $400K/$500K house?
To afford a $400K/$500K house, you typically need a gross income between $10,000 and $12,500 per month.
What’s the maximum DTI ratio for a mortgage?
It depends on the specific lender, but maximum DTI ratios are typically between 40% and 50%. DTI can be higher in extenuating circumstances, such as a large down payment or a high credit score.
Do self-employed borrowers calculate income differently?
Yes, lenders can calculate self-employed income differently, as self-employed income is usually counted as business income. Lenders will look at tax returns, 1099 income, and profit/loss statements.