Your annual income is one of the major factors lenders use in determining whether to approve your mortgage application. The exact amount of income you need for a $140,000 mortgage depends on your interest rate, repayment term and other debt payments. In most cases, you will need between $38,000 and $55,000. However, you might need more if you get a 15-year loan or have lots of other debts.
Debt-to-Income Limits
Your lender uses two major ratios to determine whether a particular mortgage will work with your income. Lenders generally want the ratio of your monthly housing payments to gross monthly income to be no more than 28 percent. Housing payments include mortgage principal and interest, plus property taxes and home-related insurance. Lenders also require that the ratio of your overall debt payments, including housing, to your gross income be no more than 36 percent.
Calculate Your Payment
Your monthly housing payment depends not only on the amount of the mortgage, but also your interest rate and the length of your repayment term. For example, if you are borrowing $140,000 at 5.5 percent interest with a repayment term of 30 years, your monthly principal and interest payment will be $794.90. On the other hand, if you borrow the same $140,000 at 6.5 percent interest, the payment jumps to $884.90. If you want a shorter repayment term of 15 years and get an interest rate of 5 percent, your monthly payment is $1,107.11. Get an interest rate quote from a lender and use a mortgage calculator to estimate your monthly payment.
Calculate Housing Expense Ratio
Add your property taxes and home-related insurance to your estimated mortgage payment to find your total housing cost. For example, it might be $794.90 for the mortgage plus $200 for the other costs, making $994.90. Divide this by 0.26 to find your minimum gross monthly income of $3,826.54 and multiply it by 12 to calculate an annual income of $45,918.48.
Calculate Total Debt-to-Income Ratio
To get your total debt-to-income ratio, add your monthly debt payments, including car payments, student loan debt and credit card debt, to your housing payments. For example, add a $300 car payment and $180 student loan payment to your monthly housing payment of $994.90 to get $1,474.90 of total debt payments. Divide this by 0.36 to calculate a minimum gross monthly income of $4,096.94, which is an annual income of $49,163.28. Compare this to the previous calculation and use the larger annual income as your requirement for getting the mortgage.
Tags: your monthly, annual income, debt payments, interest rate, repayment term, gross monthly
