In this article, we try to break down how much income families really need to be approved for the most popular mortgage loans including FHA and USDA.
How much income is needed to get a mortgage?
Ultimately the total loan amount will include your down payment, the value of the house, and additional expenses such as home insurance and property taxes.
In the next few sections, we will discuss how much income would be needed to purchase a $200,000 house with the minimum down payment amount permitted by loan regulations.
We will also look at a jumbo loan with a home valued at $485,000 to calculate the minimum income required to buy it. Readers should be advised that other external factors not accounted for here may also affect eligibility.
Federal Housing Administration (FHA) Loan
FHA loans require a down payment of between 3.5 and 10 percent depending on credit score. With a credit score of 500, someone would have to provide $20,000 to purchase a $200,000 home. This means lenders would have to finance the remaining $180,000.
If the family chooses a 30-year fixed interest mortgage, monthly payments might be around $1,200. Taking into account the debt-to-income ratio, the family would have to earn at least $2,400 each month, and have no debt, to be approved.
Families with credit scores above 580 can provide $7,000 instead as down payment. In such cases, lenders would finance $193,000 to complete the purchase. With a 30-year fixed interest mortgage, monthly payments would be $1,350. This means borrowers must earn at least $2,700 each month, and have no debt, to be approved.
Veteran (VA) and the US Department of Agriculture (USDA) loan
Veteran or VA loans do not typically require a down payment or private mortgage insurance, which is usually needed when borrowers provide less than 20 percent of the house’s value as a down payment.
VA loans tend to have lower income requirements than other types of mortgages. For example, a veteran who wants to purchase a $200,000 house will have to pay around $1,100 each month. This number is lower than what they would have to pay with an FHA loan. Qualifying veterans would have to earn no less than $2,500 each month to be eligible for a VA mortgage loan.
USDA loans also do not require a down payment. However, borrowers must pay a 0.5 percent mortgage insurance premium. Also, although USDA loans are available to anyone, only houses in selected locations can be purchased. In general, only houses in rural and suburban areas can be acquired using a USDA loan.
Loans over $485,000 (Jumbo Loans)
Jumbo mortgages, or loans over $485,000, have additional requirements compared to smaller mortgages. Banks could require borrowers to have as much as twelve monthly payment in cash. At $485,000, this would mean having at least $80,000 in cash with monthly payments around $2,650.
Jumbo mortgages have a minimum down payment of 10 percent, which equals no less than $48,500 for the minimum mortgage amount. To qualify for a larger mortgage, lenders will usually ask for a debt-to-income ratios below 45 percent. This means that to purchase a $485,000 house, borrowers must earn at least $7,500 with no other debt.