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  • Writer's pictureRebecca Richardson - Mortgage Consultant

The Intersection of Income and Homeownership

Newsflash: buying a home costs money. This is why your income is such a big part of the homebuying process. But there is a bit more to buying a home than just having a robust salary.

In the blog below, we’ll outline how much income you should be prepared to spend to buy a home, some options to buy a home when you earn a non-traditional salary, and some homebuying options for lower-income individuals!

How Much of Your Income Should You Spend on a Home?

You may have heard before that you shouldn’t spend more than 30% of your income. Like many things that involve lenders, it’s a little more nuanced than that.

When you’re buying your home, there are a few bits of your financial background that lenders shine a light on before sending their approval for you to borrow. This includes your credit score, bank statements, and crucially, your debt-to-income ratio, or as we like to call it in the industry, DTI.

DTI is as simple as it sounds. It’s simply your monthly debts divided by your gross monthly income. Lenders will use your DTI to determine whether you qualify for certain loan programs.

This ratio can vary widely, ranging from 41% all the way up to more than 55%. The right sales price for you could land within that range or above/below depending on your personal circumstances.

So, while it’s a good rule of thumb to spend a maximum of 30% of your income, bear in mind that it might not apply to your unique financial situation.

Can You Buy A Home Without a Traditional Salary?

If you have a variable income because you are self-employed, have a commission-based job, or even earn your paychecks through various side hustles, don’t worry, you can still buy a home!

It might seem like a complicated process to prove your financial stability to lenders when you have a variable income, but it’s been done before. And with the right team by your side, you’ll be able to close your loan in no time.

So, when you take home a non-traditional income, lenders will primarily focus on your financial history for the last two years. They’ll get this insight based on your tax returns, pay stubs, bank statements, and DTI.

There are even certain loan products out there which are specifically catered to individuals who need to qualify based on methods beyond traditional income verification, like non-QM loans.

Lower-Income Homebuying Options

If you take home a lower income but want to buy a home, there are options for you! Your income isn’t the only deciding factor when going through the homebuying process, and there are steps you can take now to put yourself in good standing with lenders and underwriters when you’re ready.

A great first step to prepare yourself is to maximize your credit score. The higher your score, the better your chances are of getting a favorable loan. Be sure to pay off your debts on time, and even pay a little extra to minimize those debts as much as possible.

It’s also important to establish a budget to help yourself start to save for a down payment, closing costs, and some emergency funds should anything arise after you move into your home.

Finally, knowledge is power when it comes to making any big financial commitment. There are plenty of programs out there which are catered to help lower-income and even first-time homebuyers. Do some research to see what kind of down payment assistance programs and first-time homebuyer grants specific to your state. There are also specific loan programs like USDA loans, FHA loans, and VA loans (specific for members of the military) which offer affordable paths to homeownership.

At the end of the day, everybody’s financial situation is unique. That’s why it’s so important to work with an experienced lender who will focus primarily on what’s best for you, and you alone. If you have any questions, need some advice, or just want to kick-start your journey to homeownership, reach out to a member of my team; we’re more than happy to help!

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