Income Requirements for Mortgage Preapproval


For many, purchasing a home involves securing a mortgage, and one of the essential steps in this process is obtaining a mortgage preapproval. A mortgage preapproval provides prospective homebuyers with a clear understanding of their borrowing capacity, enabling them to shop with confidence and negotiate with sellers effectively.

One crucial factor that significantly impacts mortgage preapproval is the borrower's income. Lenders carefully assess the borrower's income to determine their ability to meet mortgage obligations and to gauge the loan amount they can afford. Income stability and adequacy play a vital role in the preapproval decision, making it crucial for homebuyers to understand how their income factors into the equation.

In this study, we delve into the correlation between income and mortgage preapproval. We will explore the various aspects of the preapproval process, shedding light on how income is evaluated, its impact on the borrowing capacity, and the considerations specific to different income scenarios. By gaining insights into the role of income in mortgage preapproval, prospective homebuyers can better position themselves for a successful homebuying journey.

Income and Mortgage Preapproval


When seeking mortgage preapproval, understanding the income requirements set by lenders is crucial. Lenders have certain benchmarks and ratios that borrowers must meet to qualify for preapproval. 

Minimum Income Criteria

Lenders typically require borrowers to have a minimum income to qualify for preapproval. As a general guideline, lenders may look for a minimum gross monthly income that is around 2.5 to 3 times the monthly mortgage payment. For example, if the monthly mortgage payment is $2,000, the borrower's minimum gross monthly income should be approximately $5,000 to $6,000. However, this can vary depending on the lender's specific criteria and the loan type.

Debt-to-Income Ratio (DTI)

The debt-to-income ratio (DTI) is a critical factor in mortgage preapproval. Lenders use DTI to assess the borrower's ability to manage additional debt. A common benchmark for DTI is 43%, meaning that the borrower's total monthly debt payments (including the mortgage) should not exceed 43% of their gross monthly income. For example, if the borrower's gross monthly income is $6,000, their total monthly debt payments should not exceed $2,580 (43% of $6,000).

Types of Income Considered

Lenders consider various types of income when evaluating preapproval applications. These may include:

  1. Salary income. Traditional salaried income is a reliable income source, and lenders may require at least two years of consistent employment history for preapproval.
  2. Self-employment income. For self-employed borrowers, lenders may evaluate their income based on tax returns and may require a minimum of two years of self-employment income.
  3. Rental income. Lenders may include rental income if the borrower owns rental properties. Typically, lenders may consider 75% of the rental income when calculating preapproval.
  4. Commission, bonuses, and overtime. Lenders may consider additional sources of income, such as commission, bonuses, and overtime, but usually require a consistent history of receiving such income.

Besides regular income sources, lenders may consider additional income sources to determine preapproval eligibility. These may include alimony, child support, and other consistent income streams. For these income sources to be considered, borrowers usually need to provide documentation proving their regular receipt.


Evaluating Affordability

When applying for mortgage preapproval, lenders carefully evaluate a borrower's ability to afford a mortgage. This assessment involves a comprehensive analysis of the borrower's income and expenses to determine their maximum loan amount. 

  1. Assessing borrower's ability to afford a mortgage. Lenders use several metrics to assess whether a borrower can afford a mortgage, including the debt-to-income ratio (DTI) and the front-end ratio. The DTI ratio compares the borrower's monthly debt obligations to their gross monthly income. The front-end ratio specifically looks at the portion of the borrower's income that will go towards housing expenses, including the mortgage principal, interest, property taxes, and insurance.
  2. Calculation of maximum loan amount. To determine the maximum loan amount a borrower qualifies for, lenders consider their income, DTI ratio, and front-end ratio. For example, if a borrower has a gross monthly income of $6,000 and a DTI ratio of 36%, their total monthly debt payments (including the mortgage) should not exceed $2,160 (36% of $6,000). Additionally, if the front-end ratio requirement is 28%, the housing expenses should not exceed $1,680 (28% of $6,000). Based on these calculations, the lender can establish the maximum loan amount the borrower can afford.


Let's consider a hypothetical case study to illustrate how income affects the preapproval amount. Suppose Borrower A has a gross monthly income of $5,000 and a DTI ratio of 40%. Their total monthly debt payments should not exceed $2,000 (40% of $5,000). If the front-end ratio requirement is 30%, their housing expenses should not exceed $1,500 (30% of $5,000). Based on these calculations, the lender may determine that Borrower A qualifies for a maximum loan amount that allows them to comfortably manage their monthly debt obligations.

In contrast, Borrower B has a gross monthly income of $3,500 and a DTI ratio of 45%. Their total monthly debt payments should not exceed $1,575 (45% of $3,500). With a front-end ratio requirement of 25%, their housing expenses should not exceed $875 (25% of $3,500). Due to the higher DTI ratio, Borrower B may be eligible for a smaller preapproval amount compared to Borrower A.

When seeking mortgage preapproval, income is not the only financial factor considered by lenders. They also take into account other important elements such as credit score and employment history, which work in conjunction with income evaluation. Additionally, the presence of additional income sources, such as bonuses and investments, can also influence the preapproval process. In this section, we will delve into how these financial factors contribute to the overall assessment of a borrower's eligibility for a mortgage.

  • Credit score. Lenders typically look for a minimum credit score of around 620 to 640 for conventional loans. However, to secure more favorable interest rates and loan terms, borrowers may aim for a credit score of 700 or higher.
  • Employment history. Lenders prefer borrowers who have a stable employment history of at least two years in the same job or industry. Frequent job changes or employment gaps may raise concerns and could require additional documentation to prove stability.
  • Additional income sources. Bonuses and Commissions: Lenders may consider bonuses and commissions as part of a borrower's income if they have a history of receiving them regularly. Generally, lenders require at least a two-year history of consistent bonus or commission income.
  • Rental income. Rental income from other properties may be factored into the preapproval process, but usually, only a percentage (usually 75%) of the rental income is considered to account for potential vacancies and maintenance expenses.
  • Investments. Income generated from investments, such as dividends or interest income, can also be included in the evaluation, especially if it's consistent and stable.

It's important to note that while additional income sources can positively impact the preapproval amount, they must be documented thoroughly. Lenders will require copies of tax returns, bank statements, and other relevant documentation to verify and substantiate the income.

Table. Minimum Income Criteria for Mortgage Preapproval
Mortgage Type Credit Score Range Down Payment Minimum Income Requirement
Conventional Loan 760 and above 20% or more 28% of gross monthly income
740 - 759 20% or more 30% of gross monthly income
720 - 739 15% - 20% 32% of gross monthly income
700 - 719 10% - 15% 34% of gross monthly income
Below 700 Less than 10% 36% of gross monthly income
FHA Loan All Credit Scores 3.5% or more 31% of gross monthly income
VA Loan All Credit Scores 0% Varies by lender
USDA Loan All Credit Scores 0% Varies by lender


Self-Employed and Variable Income Applicants

Self-employed individuals and those with variable income face unique challenges when seeking mortgage preapproval. Unlike traditional salaried employees, their income may fluctuate, making it crucial to provide additional documentation to verify their earnings. Self-employed individuals must demonstrate their income stability and ability to repay the mortgage. Lenders typically require the following documentation from self-employed applicants:

  1. Profit and loss statements. Self-employed applicants should present their business's profit and loss statements for the past two years. These statements provide insight into the financial health of the business and its income generation.
  2. Business tax returns. Personal and business tax returns for the previous two years are essential for verifying income and assessing the borrower's tax liability. IRS Form 1040 Schedule C is commonly used to report business income and expenses for sole proprietors.
  3. 1099 forms. If the applicant receives 1099 forms from clients or employers, they should be included as additional proof of income.
  4. Bank statements. Lenders may request several months' worth of bank statements to review cash flow and confirm income consistency.
  5. Letter from accountant. A letter from a certified public accountant (CPA) can help validate the business's financial standing and affirm the accuracy of financial statements.

Self-employed and variable income applicants should be prepared to provide comprehensive documentation to support their income claims. 


What is the rule of thumb for income to mortgage

The rule of thumb for income to mortgage is that your monthly mortgage payment should not exceed 28% to 33% of your gross monthly income. This is often referred to as the "28/36 rule," where 28% is the front-end debt-to-income ratio (DTI) and 36% is the back-end DTI.


Is the 28 36 rule realistic

The 28/36 rule is a general guideline used by lenders to assess a borrower's eligibility for a mortgage. According to this rule, a borrower's total housing expenses should not exceed 28% of their gross monthly income, and their total debt obligations, including the mortgage, should not exceed 36% of their gross monthly income.

While the 28/36 rule is a widely used benchmark, its practicality and applicability depend on individual financial situations and regional housing markets. Here are some considerations to keep in mind:

  • The cost of living and housing prices can vary significantly from one location to another. In high-cost areas, adhering strictly to the 28% housing expense may not be feasible for many borrowers, especially in expensive urban centers.
  • The 36% debt-to-income ratio includes all debt obligations, such as credit card payments, student loans, and car loans. Borrowers with substantial non-housing debt may find it challenging to meet the 36% threshold, even if their housing expenses are within the 28% limit.
  • Everyone's financial situation is unique, and individual circumstances must be considered. For some borrowers, allocating 28% of their income to housing expenses might be manageable, while others may need to adjust their budget to accommodate other financial goals and obligations.
  • It's essential to consider the importance of building an emergency fund and contributing to retirement savings. Strictly adhering to the 28/36 rule might limit the ability to save for emergencies or retirement, which could lead to financial vulnerability in the long run.
  • While the 28/36 rule is a common guideline, lenders may be flexible and consider other factors when evaluating a borrower's financial stability and creditworthiness. Some lenders may be willing to approve a mortgage for borrowers who slightly exceed the 28% or 36% thresholds if they have strong credit scores, substantial down payments, and a stable financial history.

For example, if your gross monthly income is $5,000, the 28/36 rule suggests that your monthly mortgage payment should be no more than $1,400 (28% of $5,000) and your total debt payments, including the mortgage, should not exceed $1,800 (36% of $5,000).

In summary, the 28/36 rule can be a useful starting point for borrowers to assess their potential mortgage affordability. However, its strict application may not always align with individual financial goals and circumstances. Borrowers should work closely with lenders or mortgage advisors to determine a realistic and sustainable mortgage budget based on their specific financial situation and long-term financial objectives.


What is the 20/10 rule in mortgage

On the other hand, the 20/10 rule is another mortgage rule that suggests a borrower should have a down payment of at least 20% and a maximum mortgage term of 10 years to ensure a financially sound mortgage.

The 20/10 rule in mortgage refers to a guideline used by some lenders to assess the creditworthiness of a potential borrower. It suggests that a borrower should have a down payment of at least 20% and a maximum mortgage term of 10 years.

Having a down payment of at least 20% is beneficial for several reasons. First, it reduces the loan-to-value (LTV) ratio, which is the amount of the mortgage compared to the home's appraised value. A lower LTV ratio indicates lower risk for the lender, which can result in better loan terms, including a potentially lower interest rate. Second, a larger down payment means borrowing less money, which can lead to lower monthly mortgage payments.

The maximum mortgage term of 10 years implies that the borrower should aim to pay off the mortgage within a relatively short period. Shorter mortgage terms typically come with lower interest rates, and the borrower will pay less interest over the life of the loan. Additionally, a shorter mortgage term can lead to faster home equity buildup.

It's important to note that the 20/10 rule is not a strict requirement for obtaining a mortgage, and different lenders may have varying criteria. Some borrowers may choose longer mortgage terms, such as 15, 20, or 30 years, depending on their financial goals and circumstances. While the 20/10 rule can be a helpful guideline for financially prudent borrowing, it's crucial for borrowers to consider their individual financial situation and consult with a qualified mortgage advisor to determine the best mortgage option for their needs.


Can you mortgage be 50% of my income

In general, it is not advisable for your mortgage payment to be 50% of your income. A mortgage payment that consumes such a significant portion of your income could lead to financial strain and make it challenging to meet other essential living expenses, savings goals, or unexpected emergencies.

The 28/36 rule is a common guideline used by lenders to determine a borrower's ability to afford a mortgage. According to this rule, your total housing expenses (including mortgage payment, property taxes, insurance) should not exceed 28% of your gross monthly income, and your total debt payments (including the mortgage and other debts) should not exceed 36% of your gross monthly income.

If your mortgage payment is 50% of your income, it may indicate that your housing expenses are too high in proportion to your income, and you may be at risk of becoming financially burdened.

While there might be exceptions in certain situations, such as high-income earners with substantial savings or investments, it is generally considered financially prudent to keep your mortgage payment within a more conservative range to ensure financial stability and reduce the risk of financial stress. It's essential to carefully evaluate your budget, financial goals, and long-term plans when considering a mortgage to make sure you can comfortably afford your housing costs without compromising your overall financial well-being. Consulting with a financial advisor or mortgage professional can help you make a more informed decision based on your specific circumstances.

How much do you have to make a year to afford a $400,000 house?

To determine how much you need to make a year to afford a $400,000 house, we can use the 28/36 rule as a general guideline. According to this rule, your total housing expenses should not exceed 28% of your gross monthly income, and your total debt payments (including the mortgage) should not exceed 36% of your gross monthly income.

Let's assume you have no other significant debts and are looking to purchase the $400,000 house with a 20% down payment ($80,000). This means you'll need to take out a mortgage of $320,000.

Now, let's calculate the monthly mortgage payment:

  • Interest rate: Assume a 30-year fixed-rate mortgage with an interest rate of 4%.
  • Mortgage term: 30 years.
  • Property taxes: Assume an annual property tax of $5,000 (approximately $417 per month).
  • Homeowners insurance: Assume an annual premium of $1,200 (approximately $100 per month).
  • Private Mortgage Insurance (PMI): Assume no PMI since you are making a 20% down payment.

Using a mortgage calculator, we find that the estimated monthly mortgage payment (principal and interest) would be approximately $1,528.


Now, let's calculate the gross annual income needed to afford this mortgage:

  • Monthly mortgage payment: $1,528
  • Total monthly debt payments: We assume no other significant debts in this example.
  • To satisfy the 28/36 rule, your total housing expenses (including mortgage, property taxes, and insurance) should not exceed 28% of your gross monthly income.
  • Dividing the monthly mortgage payment by 28%: $1,528 / 0.28 = $5,457 (approximately)
  • Gross annual income needed: Multiply the monthly income requirement by 12 to get the gross annual income needed: $5,457 * 12 = $65,484 (approximately)

So, to afford a $400,000 house with a 20% down payment and meet the 28/36 rule, you would need to make approximately $70,000 per year. Keep in mind that this is a simplified example, and other factors like credit score, debts, and additional expenses may influence the final calculation. It's always best to consult with a mortgage lender or financial advisor to get a more accurate estimate based on your specific financial situation.


Mortgage Affordability Table
Real Estate Value Minimum Annual Income Maximum DTI Minimum Credit Score
$100,000 $30,000 45% 580
$150,000 $45,000 45% 580
$200,000 $60,000 45% 580
$250,000 $75,000 45% 620
$300,000 $90,000 43% 620
$350,000 $105,000 43% 640
$400,000 $120,000 40% 640
$450,000 $135,000 40% 660
$500,000 $150,000 40% 660
$550,000 $165,000 38% 680
$600,000 $180,000 38% 680


Please note that the maximum debt-to-income ratio (DTI) represents the percentage of a borrower's gross monthly income that goes toward paying debts, including the mortgage. The minimum credit score indicates the lowest credit score generally required to qualify for a mortgage at the given real estate value. Keep in mind that different lenders may have varying criteria, and it's advisable to consult with them directly for personalized information.


Can You Get Mortgage Pre-Approval Without Income

Income is a critical factor that lenders use to assess a borrower's ability to repay the mortgage. Without verifiable income, it becomes challenging for lenders to determine whether the applicant can meet their financial obligations.

The idea of getting a mortgage pre-approval without a traditional job may seem daunting, but it is indeed possible. Lenders typically require proof of stable employment and income to assess a borrower's creditworthiness and ability to repay the loan. However, various circumstances may arise where individuals find themselves without a conventional job but still have the means to meet their monthly mortgage obligations.

  • Demonstrating Financial Stability Borrowers can explore alternative income sources beyond conventional jobs, such as child support payments, alimony, rental property income, retirement income, investment income, or divided payments. These sources can showcase a steady cash flow, which lenders view favorably when evaluating the borrower's creditworthiness.
  • Having substantial cash reserves can be a game-changer for borrowers without income. In some cases, borrowers may have inherited substantial sums of money or diligently saved over time, allowing them to showcase their financial capability to meet monthly mortgage obligations.
  • Boosting Your Pre-Approval Chances Having a co-signer, such as a parent, spouse, or relative, with sufficient income and a good credit score, can significantly enhance the chances of obtaining mortgage pre-approval. A co-signer agrees to assume financial responsibility for the mortgage if the primary borrower is unable to make payments, providing added security for lenders.
  • Gaining Professional Assistance HUD-approved housing counselors are professionals who can help evaluate a borrower's financial situation and offer advice on securing mortgage pre-approval. These counselors are trained to work with individuals with lower incomes or first-time homebuyers, helping them explore potential paths to homeownership.
  • For those without traditional employment, specialized home loan types such as Asset Depletion Mortgages and No Income Verification Mortgages offer alternatives to qualify for a mortgage based on assets or without income verification.

In conclusion, getting mortgage pre-approval without a conventional job is indeed possible through various alternative income sources, substantial cash reserves, co-signers, and specialized loan options. As every individual's financial situation is unique, it is crucial to work with a reputable lender or mortgage advisor who can help explore the best options based on individual circumstances and ensure a smooth pre-approval process.

The information used in the preparation of the materials includes data from the following internet sites:

  • Bank of America: []
  • Rocket Mortgage: []
  • Lending Tree: []



William Anderson
Profit Dwelling

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