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When you apply for a mortgage, your lender wants to be sure you can repay the money. Income is a big factor that helps your mortgage lender make its decision — but you don’t have to be a high-earner to qualify for a home loan.
The lender will check your overall financial standing and look at the cost of the home you want to buy.
Here’s how your income can affect what mortgage you get:
Income requirements for a home loan
There’s no universal income requirement to qualify for a mortgage. Instead, the lender:
- Verifies you earn enough to pay for a specific home
- Reviews your outstanding debts to see if you can take on a mortgage payment
- Checks your credit to see how you’ve managed debt in the past
- Estimates your housing costs to see how they can fit into your budget
Next, the lender will determine whether you qualify for the home loan. Most lenders follow mortgage income requirements set by Fannie Mae and Freddie Mac during the underwriting process, but they have the discretion to set their own, too.
If you’re considering a home purchase, be sure to shop around for the best home loan. Credible makes this easy — you can compare all of our partner lenders in minutes.
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Debt-to-income requirements
Income itself might not provide a full picture of your financial health, so lenders also consider your debt-to-income ratio. This number measures how much of your monthly income goes toward debt payments and helps the lender figure out whether you can comfortably take on more debt.
There are two types of DTI ratios lenders consider when reviewing a mortgage application:
- Back-end DTI: This takes into account all of your debts, including your estimated mortgage payment, and is the ratio most widely used by lenders.
- Front-end DTI: This only includes your housing costs, such as your new mortgage payment, taxes, and insurance.
| Loan type | Front-end DTI | Back-end DTI |
|---|---|---|
| FHA | 31% to 33% | 43% to 45% |
| USDA | 29% | 41% |
| VA | N/A | 41% (but lenders are free to go higher) |
| Conventional | 36% | 45% |
Find Out: What Kind of House Should I Buy? How to Pick the Perfect Home
How to show proof of income
When applying for a home loan, it helps to know what income can be used to qualify for a mortgage and the documents you need.
Most lenders follow Fannie Mae and Freddie Mac’s income-verification guidance — and if you received a pre-approval, you probably gathered most of these required documents already.
Here’s what you need as proof of income for the mortgage approval:
Employment income
If you work for someone else, it should be relatively easy to document the income required for a mortgage.
But even if you don’t work a normal 9-to-5 gig — like self-employed workers — there are other ways to meet the income requirements for a mortgage. Here are some examples:
| Type of income | Documents needed |
|---|---|
| Salary or hourly pay | Form 1005 or your most recent pay stub and W-2 forms covering the most recent one-year period. |
| Bonus and overtime pay | Form 1005 or your most recent pay stub and W-2 forms covering the most recent two-year period. |
| Commissions | Form 1005 or your most recent pay stub and W-2 forms covering the most recent two-year period. |
| Second job income | Your most recent pay stub and W-2 forms covering the most recent two-year period. |
| Self-employment income | One to two years’ worth of personal tax returns, potentially two years’ worth of business tax returns, and Fannie Mae’s Form 1084. |
Other forms of income
Homebuyers can also use non-employment income to apply for a mortgage. Here are some alternative ways to prove you have the income to qualify for a mortgage, along with examples of acceptable documentation:
- Alimony or child support: You’ll need to produce a copy of a divorce decree or separation agreement that shows the monthly payment amount and describes the payment terms. Lenders will check that you’ve received these payments for at least six months.
- Capital gains: You’ll need to provide two years’ worth of federal income tax returns with Schedule D.
- Long-term disability: You’ll have to show a copy of the policy from whoever is paying the benefits, such as an insurance company or employer. The document should include the amount and frequency of the disability payments and an end date, if applicable.
- Interest and dividends: You’ll need to provide two years’ worth of federal income tax returns that document the income, or copies of account statements for the asset.
- Retirement and pension income: This can be in the form of a retirement award letter, financial or bank account statement, a federal income tax return, a W-2 form, or a 1099 form.
- Royalty payments: This can be a copy of the royalty contract, agreement, or statement that shows how much you receive and how often. You’ll also need to provide your most recent federal income tax return with Schedule E.
- Schedule K-1 income: You’ll need to provide two years’ worth of your most recent federal income tax returns with Schedule K-1.
- Social Security payments: You must show an award letter from the Social Security Administration, or current receipts of payment.
Other mortgage eligibility factors
Income and DTI aren’t the only factors that determine your eligibility for a home loan. Mortgage lenders will also look at your credit score and down payment before deciding to approve you.
Credit score
Your credit score plays a large role in whether you qualify for a mortgage — and your interest rate — because it helps lenders predict whether you’ll repay the loan as agreed. Credit score requirements vary by lender and mortgage program.
| Loan type | Min. credit score |
|---|---|
| Conventional | 620 |
| FHA | 500 or 580 (depending on your down payment) |
| VA | No minimum |
| USDA | No minimum |
Learn More: Credit Score Needed to Get a Home Loan
Down payment
A down payment is the money you put toward your house upfront. Generally, a larger down payment helps you build equity faster, lower your mortgage payment, and potentially qualify for a lower interest rate.
Down payment requirements vary by mortgage program. If you can afford to put down 20%, then you’ll avoid paying private mortgage insurance, or PMI. But it’s OK to put down less. In fact, the median down payment was 12% for all buyers, according to the most recent data from the National Association of Realtors.
When shopping for a mortgage, it helps to know how much you can expect to pay over the life of the loan. Enter your loan amount and interest rate into our mortgage calculator to determine what you’ll pay monthly and over the life of the loan.
Enter your loan information to calculate how much you could pay
With a $ home loan, you will pay $ monthly and a total of $ in interest over the life of your loan. You will pay a total of $ over the life of the mortgage.
