What Counts as Income for a Mortgage?
One of the most confusing parts of buying a home is realizing that the income lenders use to qualify you often looks very different from what you actually earn. Many borrowers are surprised when a lender says, “You make less than you think.”
In this guide, we’ll break down exactly what counts as income for a mortgage-including W-2 wages, self-employed income, bonuses, commissions, and rental income-how lenders calculate it, and how to plan ahead so income rules don’t derail your home-buying plans.
What Lenders Mean by “Qualifying Income”
Lenders don’t look at income the way you do. Instead of asking how much you make today, they focus on whether your income is stable, documented, and likely to continue.
This is called qualifying income. It’s usually based on historical averages, not your best month or most recent raise. That conservative approach helps lenders reduce risk-but it can be frustrating for borrowers with variable or growing income.
W-2 and Salary Income
W-2 income is the simplest and most straightforward type of mortgage income. Full-time salaried or hourly wages with a consistent history are generally accepted with minimal scrutiny.
- Pay stubs and W-2s are required
- Employment must be stable or in the same field
- Recent raises may not be fully counted
Bonus, Overtime, and Commission Income
Variable income like bonuses, commissions, and overtime can count, but only if it’s consistent. Lenders typically require a two-year history and will average earnings over that time.
One strong bonus year usually isn’t enough. If bonus income is declining, lenders may reduce or exclude it entirely.
Self-Employed and 1099 Income
Self-employed income is often the most misunderstood. Lenders look at net income after expenses-not gross revenue-and usually require two full years of tax returns.
Large write-offs may help at tax time but can reduce your qualifying income. This creates a tradeoff between minimizing taxes and maximizing mortgage eligibility.
Rental and Investment Property Income
Rental income can help you qualify, but lenders usually apply a vacancy factor-often around 25%-to account for downtime and expenses.
New landlords face additional restrictions, and projected rental income is often discounted heavily compared to existing rental history.
Other Income That May Count
- Alimony or child support (with documentation)
- Social Security and disability income
- Pensions and retirement income
- Trust or annuity distributions
Income That Does Not Count Toward a Mortgage
- Unreported cash income
- One-time windfalls or gifts
- Gambling or lottery winnings
- Temporary or seasonal income without history
How Lenders Calculate Monthly Qualifying Income
Income is usually averaged over time and adjusted downward if trends are inconsistent. This conservative method helps ensure borrowers can handle payments long-term.
How Income Rules Vary by Loan Type
FHA and VA loans may allow more flexibility than conventional loans, while USDA loans include strict income limits. Understanding these differences can expand your options.
For a full affordability framework, visit Home Buying Process & Affordability.
How to Plan Your Income Before Buying a Home
If homeownership is a goal, income planning should start 12–24 months in advance. Avoid job changes, document income carefully, and test scenarios early to avoid surprises.
Tools to Estimate What Income Lenders Will Use
Want to See How Your Income Really Affects Affordability?
Use lender-style calculations to estimate payments and price ranges that fit your income-not just lender approval.