Potential home buyers should ensure they make enough income to cover more than the monthly payment on a mortgage to qualify for a loan. A borrower's down payment on a home reduces the amount owed on a property's purchase price. Yet monthly mortgage costs are driven up by interest charges and expenses for insurance and taxes.
Lenders look at how much of your monthly income would go toward paying the mortgage that you're seeking. Other property expenses are included with the mortgage to determine if borrowers earn enough to pay for more than just the home loan. According to financial websites such as Bankrate.com, lenders generally don't want the monthly mortgage payment, real estate taxes and homeowner's insurance costs to exceed 28 percent of a borrower's gross monthly income. Your gross monthly income is the amount you're paid before taxes are deducted.
Your total monthly debt obligations have to pass a lender's scrutiny as well. Therefore, a lender also determines whether a borrower's salary would cover monthly payments for mortgage costs along with car loans, credit-card bills and other debts. In this case, the total of all your monthly debts generally should take up no more than 36 percent of your gross monthly income.
A borrower whose annual salary is $50,000 may qualify for a mortgage if the monthly mortgage payment doesn't exceed $1,167. That's because 28 percent of the borrower's income would equal $14,000. That amount divided by 12 months comes to $1,167. The borrower's total monthly debt payments shouldn't exceed $1,500 because 36 percent of $50,000 divided by 12 months equals $1,500. Some lenders may allow your monthly expenses to take up higher percentages of your income to qualify you for a mortgage. However, you could end up defaulting on your mortgage if you live on a budget that's so tight it leaves little room for emergency expenses.
Increase your chances of qualifying for a mortgage by shopping for homes in areas that are likely to help you meet a lender's income qualifications. For example, you should consider the selling price of a home as well as the cost of real estate taxes to estimate your monthly mortgage payment. A real estate agent would have information on property tax rates in your area. Homeowner's insurance is required to obtain a mortgage. Contact an insurance agent to get an estimate on the cost of homeowner's insurance and include that in your estimate on monthly mortgage costs.
Frances Burks has more than 15 years experience in writing positions, including work as a news analyst for executive briefings and as an Associated Press journalist. Burks has banking and business development experience, and she has written numerous articles on consumer issues and home improvement. Burks holds a bachelor's degree in political science from the University of Michigan.