When you apply for a $50,000 mortgage your lender looks at your last two years' W-2s and your tax returns to determine your income level. However, you do not qualify for a loan solely on the basis of your income. The lender has to look at a number of other factors when assessing your loan application, and some people are unable to obtain financing regardless of their income levels due to poor credit scores.
A variety of factors, such as your credit score and debt to income ratio, will influence how much income you need to be earning to qualify for a mortgage.
Understanding Loan Terms
Mortgage companies offer loan products with a variety of terms that include fixed-rate 15 and 30-year mortgages and loans that begin with interest-only terms. A 30-year mortgage typically has lower payments than a 15-year mortgage while interest-only loans have the lowest payments of all for the at least the first few years of the loan. To know how much income you need to qualify for a $50,000 mortgage to buy a home, you first need to choose a loan term so the lender can figure out your payment amount as a percentage of your income level.
Exploring the Interest Rate
Having chosen a mortgage term, the lender checks your credit report. Most lenders require borrowers to have to have a credit score in excess of 620, but you can get a Federal Housing Administration insured loan if you have a credit score of 580 or higher. However, in the eyes of lenders, low credit scores equate to higher default risk, while people with high credit scores are more likely to make their mortgage payments on time. The interest rate you pay, in conjunction with your mortgage term, determines your proposed monthly payment amount.
When you provide your lender with evidence of your income, the lender uses that information to calculate your debt-to-income ratio. To do this, lenders check your credit report and see what debt payments you have to pay on a monthly basis. Your debt payments are divided into your gross monthly income to determine your DTI. Typically, you cannot qualify for a loan if your DTI level exceeds about 41 percent of your income. However, within your DTI, your mortgage payment cannot normally exceed 29 percent of your income during the term of your mortgage.
Other Important Calculations
If you have good credit and choose to take out a $50,000, 30-year mortgage at a 5 percent interest rate, your monthly payment would amount to $268.41. Your lender would add the cost of taxes and insurance to that amount, and those costs vary, but if those two costs amounted to $200 combined, then your overall payment would amount to $468.41. If you earned $19,800 per year, then you could take out the $50,000 loan and your payment amount would stay under the housing ratio limit of 29 percent. However, any other debts that cause your DTI to exceed 41 percent could necessitate an increase in your income. Therefore, you must contend with mortgage terms, interest rates and your other debts when trying to figure out how much income you need to qualify for a $50,000 loan.
- Bankrate: Mortgage Basics-- How Much House Can You Buy?
- Harbor Loans of Lafayette | Better Business Bureau® Profile
- What is a debt-to-income ratio? Why is the 43% debt-to-income ratio important?
- Federal Housing Administration. "Annual Report to Congress Regarding the Financial Status of the Mutual Mortgage Insurance Fund," Page 52. Accessed April 10, 2020.
- My Fico. "Loan Savings Calculator." Accessed 10, 2020.
- Fannie Mae. "Underwriting Factors and Documentation for a Self-Employed Borrower." Accessed April 10, 2020.
- Internal Revenue Service. "Form 4506-T: Request for Transcript of Tax Return," Page 1 - 2. Accessed April 10, 2020.
- Internal Revenue Service. "Form 8821: Tax Information Authorization," Page 1 Accessed April 10, 2020.
- Internal Revenue Service. "Form 4506: Request for Copy of Tax Return," Page 1 - 2 Accessed April 10, 2020.