Income Needed to Buy a House Calculator

How do you use this income calculator?

Enter the price of the home you want, your down payment and an interest rate, then add local costs and your other debts. The calculator estimates the full monthly payment and returns the gross yearly income needed to keep that payment within your chosen debt-to-income limits.

Tips for each input:

• Home price and down payment: try your target home and a cheaper one to see the gap.
• Interest rate: test two or three example rates, since rate swings change the answer a lot.
• Tax rate, insurance and HOA: use local figures. They count toward the payment lenders measure.
• PMI rate: only used if you put down less than 20%. Ask a lender for a realistic rate.
• Other debts and limits: keep 28/36 for a cautious answer, or enter a lender’s limits to see a minimum.

How is the income calculated?

The calculator first builds the full monthly payment, then divides it by each limit. Whichever limit requires more income wins, because you have to pass both.

1. Monthly payment = principal and interest + property tax + insurance + PMI (if the loan is above 80% of the price) + HOA dues. Principal and interest use M = P × r(1 + r)^n / ((1 + r)^n − 1), where P is the loan, r the monthly rate and n the number of payments.
2. Income by housing limit = monthly payment × 12 ÷ front-end limit.
3. Income by total-debt limit = (monthly payment + other debts) × 12 ÷ back-end limit.
4. Income needed = the larger of the two.

It does not include closing costs, reserves, maintenance or FHA’s upfront premium, and it uses your income before taxes.

What does a worked example look like?

For a $400,000 home with $40,000 down at an example rate of 6.5%, the full payment is about $2,942 a month. Under a 28% housing limit, that takes a gross income of about $126,090 a year, or $10,508 a month.

Here is how the inputs change the answer for the same $400,000 home:

These rates are examples only. For current national averages, check Freddie Mac’s weekly Primary Mortgage Market Survey.

What does your result mean?

The result is the income at which this home fits your chosen limits. If your gross household income is at or above it, the payment fits that rule. If it is below, you can lower the price, raise the down payment, cut other debts or look for a lower rate.

What a lender requires may be lower, because many programs allow higher ratios than 28/36:

• Fannie Mae allows up to 50% total DTI through its automated system, and 36% (up to 45% with the required credit score and reserves) when underwritten by hand, per its Selling Guide.
• FHA manual underwriting starts at 31% housing and 43% total, rising to 40% and 50% with compensating factors, under HUD’s Handbook 4000.1.
• Mortgage insurance affects the payment. The CFPB explains that PMI is usually required on conventional loans with less than 20% down; its price depends on credit and down payment.

Lenders also decide which income counts. Steady salary is simple; self-employment, commission and part-time income usually need a history and documents.

What are the most common mistakes?

Watch for these when you read the result:

• Comparing it to take-home pay. The result is gross income.
• Leaving out taxes and insurance. They are part of the payment lenders measure.
• Assuming a low example rate. Test a higher rate too, in case rates rise before you lock.
• Forgetting debts that start soon. A student loan coming out of deferment will count.
• Treating a lender’s limit as a budget. Higher ratios can be approved and still feel tight.

Where should you go next?

To work the other way, from your income to a price, use the home affordability calculator. Check your current ratios with the debt-to-income ratio calculator, or break down a payment with the mortgage payment calculator.

For more background, read how much house you can afford, how much down payment you need and prequalification vs. preapproval.