What Income Do Lenders Actually Look At for Mortgage Approval?
When applying for a mortgage, many buyers assume lenders simply look at their salary and credit score. In reality, mortgage lenders take a much deeper dive into how you earn money, how long you’ve earned it, and how reliable that income appears over time. Understanding what income lenders actually look at for mortgage approval can help you prepare smarter, avoid surprises, and improve your chances of getting approved.
This guide breaks down the types of income lenders accept, how they calculate it, and common mistakes that can hurt your approval—even if you make good money.
The Core Rule: Stability and Continuity Matter Most
Lenders don’t just care about how much you earn—they care about how predictable your income is. The general rule across most loan programs is:
Income must be stable and consistent, and likely to continue for at least 3 years.
This principle drives nearly every income decision underwriters make. Even high earners can be denied if their income lacks history or reliability.
W-2 Employment Income
Salaried Employees
If you’re a salaried employee, this is the simplest income type for lenders to evaluate.
Lenders typically review:
Recent pay stubs (last 30 days)
W-2s from the past 2 years
Employment verification from your employer
If your salary is consistent and you’ve been with the same employer (or in the same field) for at least two years, your full base income is usually counted.
Hourly Employees
Hourly income is acceptable, but lenders will usually:
If your hours vary significantly, the lender may use a conservative average—or exclude part of the income altogether.
Overtime, Bonuses, and Commission Income
This is where many borrowers get confused.
Overtime Income
Overtime can count only if:
If overtime is sporadic or new, lenders may exclude it entirely.
Bonus Income
Bonuses are treated similarly to overtime:
One large bonus does not guarantee a higher qualifying income.
Commission Income
Commission-based borrowers face stricter review:
If commissions make up more than 25% of your total income, underwriting scrutiny increases.
Self-Employment and Business Income
Self-employed borrowers often earn more—but qualify for less.
What Lenders Look At
Lenders analyze:
Last 2 years of personal tax returns
Business tax returns (if applicable)
Profit & loss statements
Business stability and industry trends
The Big Misunderstanding
Lenders use net income, not gross revenue.
Write-offs that reduce your tax liability also reduce your qualifying income. Common deductions like depreciation, mileage, and home office expenses can significantly lower what lenders count.
Declining Income = Red Flag
If your net income is trending downward year over year, lenders may:
1099 and Gig Economy Income
Freelancers, contractors, and gig workers (Uber, DoorDash, content creators, consultants) are usually treated as self-employed—even if they feel like employees.
Requirements usually include:
Short-term spikes or brand-new gigs typically won’t count.
Rental Income
Rental income can help you qualify—but it’s not dollar-for-dollar.
Lenders usually:
For new rental properties, projected rent may be used—but only with a market rent analysis.
Retirement, Pension, and Social Security Income
Fixed income sources are often viewed favorably.
Accepted income types include:
Key requirement:
Social Security income may also be “grossed up” since it’s often tax-free, allowing borrowers to qualify for more.
Child Support and Alimony
These income sources can be counted only if:
There’s a legal court order.
You’ve received it consistently for at least 6–12 months.
It’s expected to continue for 3 more years.
Voluntary payments or informal arrangements do not count.
Income That Typically Does NOT Count
Some income sources are either excluded or heavily restricted, including:
Cash income not reported on taxes.
Gambling winnings (unless extremely consistent and documented)
One-time bonuses
Reimbursements
Temporary disability payments
Unemployment income (in most cases)
If it’s not documented and recurring, lenders won’t use it.
How Lenders Calculate Your Income
Lenders don’t just look at income in isolation. They compare it against your debts using the Debt-to-Income (DTI) ratio.
DTI = Monthly debt payments ÷ Gross monthly income
Most loan programs prefer:
Even high income can be outweighed by high debt.
Common Income Mistakes That Hurt Approval
Changing jobs right before applying
Switching from W-2 to self-employed
Taking large write-offs before a purchase
Inconsistent overtime or commissions
Not filing accurate tax returns.
Assuming gross income is what lenders use
Timing matters just as much as income level.
How to Prepare Before Applying
If you’re planning to buy in the next 6–24 months:
Keep income consistent
Avoid major career changes.
Talk to a loan officer before changing the pay structure.
Plan tax strategies carefully if self-employed.
Document everything
Proactive planning can mean the difference between approval and denial.
Final Thoughts
Mortgage lenders don’t simply ask, “How much do you make?”
They ask, “How stable, predictable, and provable is your income?”
Understanding what income lenders actually look at for mortgage approval puts you in control of the process. Whether you’re W-2, self-employed, or earning multiple income streams, the key is documentation, history, and consistency.
If you prepare early and structure your income wisely, qualifying becomes far easier—and far less stressful.
Thank you for reading! If you enjoyed this article and want to explore more content on similar topics, check out our other blogs at Sonic Loans, Sonic Realty, and Sonic Title. We have a wealth of information designed to help you navigate the world of real estate and finance. Happy reading!
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