when trying to quailify for a mortgage why do they want you income before taxes???? why not after taxes which?

Question

which are the income you have available to spend anyways

Answer 1

Despite asking for gross income amounts, the fact that you have to pay taxes is considered.

The lender will make some calculations using your gross income, along with the amount of total debt you are carrying and the amount of housing payment after the loan closes.

Your housing obligation will be divided by your monthly income for your housing ratio - the percent of your income devoted to housing. Your total debt obligation will be divided by your monthly income for your total debt ratio - the percent of your income devoted to monthly debt.

Every loan program has a maximum total debt ratio. In other words, you will only qualify for the loan if your total debt ratio is below, say 48%. That means you have 52% of income available for other things.

In setting the maximum debt ratio a lender will allow, the lender considers that there will be other expenses, such as taxes and food, that a buyer will have to pay out of the remaining income.

So while the lender is not asking you about the taxes you pay, the fact that you pay taxes has already been incorporated into the system.

While it is true if you have, let's say, 3 kids, you will have more deductions than a single filer. But you will also have more expenses not caught by your debt load - you've got to feed those kids - so even though you pay less in taxes, you will probably have the same amount of unrestricted cash as the single filer.

If your income is not taxes, such as SSI income, most lenders will allow it to be "grossed up." This usually means adding an additional 25% to the income amount. When the income is put into the system, grossing up allow non-taxed income to be analyzed in a system that assumes taxes are paid.

Answer 2

Not really, since buying a home will change your tax outlook. You will actually get more of the money that you make as a result of having a mortgage and a home.

Answer 3

The amount of taxes you pay will be affected partially by factors a lender cannot consider, such as marital status, number of dependents, etc.

Answer 4

Your income after taxes can change.
for example, once you buy the house, you will have more deductions.
Once you have kids you will have more deductions etc.

if we both make 30k, you might have 3kids and bring home 22k but if I have none I might bring home 17k.