Q:

When applying for a mortgage, do they look at net or gross income?

A:

Quick Answer

In evaluating a borrower's application, mortgage lenders use gross income to calculate debt-to-income ratios, according to Investopedia. The general rule of thumb is that a borrower shouldn't have debt obligations that exceed 36 percent of monthly gross income.

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Full Answer

If a borrower makes $4,000 gross per month, the maximum debt of that borrower under the 36 percent guideline is around $1,440. Some lenders exceed this threshold based on other application factors. Even though lenders use gross pay, Investopedia points out that borrowers need to consider their actual take-home pay when deciding whether they can afford to make a certain mortgage payment.

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