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What are the Income Requirements in Home Loans?
When applying for a home loan, you will find that the income requirements vary. The least amount you should earn to qualify for the home loan will be determined based on your responses to several questions. Be sure that you can respond favorably to these questions before filing your application for a home loan.
* How much home loan amount are you applying for?
* How much can you afford to pay in terms of periodic amortizations?
* Do you have a steady source of income or is your income irregular?
* Where does your income come from or where will you get the money to pay back the loan?
* Can you provide proofs of your income?
Loan Amount and Debt-to-Income Ratio
The amount of the home loan is interdependent on your income requirements. The lender will first check on the amount of your loan application and the monthly payments. Then, the loan officer will assess your existing debts vis-à-vis your income and compute the debt-to-income ratio. This is an indicator if, after paying all your bills and other obligations, you will still have money left to pay for your home loan amortizations.
Before shopping for a home loan, you may want to calculate your debt-to-income ratio to know if you can afford the monthly payments. If you see that you’re likely to have some difficulty in making the payments, you may have to pay off your other debts before filing a home loan application.
Source of Income and Credit History
Lenders generally prefer to grant loans to people with a steady inflow of cash. If your income comes only during the summer months and you’re practically without work during the winter months, like people in the construction industry, you will need to prove that you are able to keep a big portion of your summer earnings so you have enough money to spend and meet all your payables including the home loan payments come winter time.
You loan officer will also review your credit history to check if your have had a pattern of difficulty in meeting your bills. Other important factors being considered are your tenure at your present job and your employment history. Lenders are particularly wary of people who frequently switch jobs. Desirable borrowers are those that have long been with their current employers because that would be indicative of job security.
Another important factor is your source of income. Most lenders will compute only the income that comes from a permanent job even if you are earning much from your home business. If you do your homework, however, you can find lenders willing to consider your income as a self-employed individual provided you can show proof of your income and demonstrate the stability of your business.
The other sources of income that are highly acceptable to lenders of home loans are Social Security Disability payments, pensions or retirement income, and other forms of income coming from the government.
Proof of Income
You will need to prove your income to the lender. If you are employed, you can submit your pay slips. The self-employed may be required to submit copies of their tax returns to show their income during the previous years and perhaps bank statements that show your deposits from your business income. Specific requirements differ from one lender to the next and you should not have any problem meeting them if you are diligent in keeping your records.
Although the amount of your monthly income is also factored in, the income requirements in home loans are mostly centered on your favorable debt-to-income ratio as supported by a good credit history.