When applying for a mortgage, lenders will take into account various factors to determine whether you qualify for a loan. One of the most important factors that lenders consider is your income. But what exactly do lenders count as mortgage income? In this article, we’ll explore what types of income lenders consider and how they calculate your mortgage affordability.
Types of Income Lenders Consider
Lenders typically consider two types of income when assessing your mortgage affordability: primary income and secondary income. Primary income is the income that you earn from your main source of employment. This includes your salary, wages, and any bonuses or commissions you receive. Secondary income, on the other hand, is income that comes from other sources such as investments, rental properties, or self-employment.
When assessing your mortgage affordability, lenders will often look at both your primary and secondary income. However, they may place more weight on your primary income as it is considered to be a more stable and reliable source of income.
How Lenders Calculate Your Mortgage Affordability
To determine your mortgage affordability, lenders will typically use a debt-to-income (DTI) ratio. This ratio compares your monthly debt payments to your monthly income. The lower your DTI, the more likely you are to be approved for a mortgage.
When calculating your DTI, lenders will include all of your monthly debt payments, such as credit card payments, car payments, and student loans. They will also include your monthly housing expenses, including your mortgage payment, property taxes, and homeowners insurance.
In terms of income, lenders will typically use your gross income rather than your net income. Gross income is the amount of money you earn before taxes and other deductions are taken out. This is because lenders want to see how much money you are bringing in each month before any expenses are taken out.
Other Factors Lenders Consider
In addition to your income, there are a variety of other factors that lenders will consider when assessing your mortgage affordability. These include your credit score, your employment history, your debt-to-asset ratio, and the size of your down payment.
Your credit score is one of the most important factors that lenders consider when assessing your mortgage affordability. A high credit score indicates that you are a responsible borrower who is likely to make your mortgage payments on time. A low credit score, on the other hand, may make it more difficult for you to qualify for a mortgage or result in higher interest rates.
Your employment history is also an important factor that lenders consider. Lenders prefer to see a stable employment history with consistent income over time. This shows that you have a reliable source of income and are less likely to default on your mortgage.
Conclusion
When applying for a mortgage, it’s important to understand what types of income lenders consider and how they calculate your mortgage affordability. By knowing what factors lenders look at, you can take steps to improve your chances of being approved for a mortgage. Remember to keep your DTI ratio low, maintain a good credit score, and provide a stable employment history to increase your chances of getting approved for a mortgage.