When applying for a mortgage, why do they look at your Gross Income rather than your Net Income?

Answer 1

Because they want to lend you the most possible money they can, so they will earn more interest!

Buy about 2/3 the house they say you can afford, you will be far less likely to have to "struggle". Spending more than 25% of your income on somewhere to live is a surefire way to make life unnecessarily difficult...

Answer 2

The first 2 people are wrong. You asked why they used your Gross Income instead of your net.

When the Government started doing mortgages for Veterans after the war, they based it on your gross income. The VA still does. If you apply for a VA loan it includes all Gross income to qualify. You, your spouse, your kids, anybody living in the house.

FHA was started and followed the same rules. FHA no longer requires that (on most loans).

Congress Mandated 2 companies Fannie Mae and Freddie Mac to do loans as a private company. But they still report to congress, but they are private. To avoid confusion they kept them all using Gross Income. The Government Mandates that you use Gross income for FHA, VA, Fannie Mae, and Freddie Mac loans.

So its not too confusing. The only loan that is really affect by the Gross income, in making too much. Is all VA loans, and many FHA loans. Well fannie mae and freddie mac have a couple loans that are limited by gross income.

I should give the first 2 responses a thumbs down, they are absolutely wrong, but there is like 1% truth in what they say. Plus I normally give them thumbs up.

Thats your answer.

Answer 3

The ratios borowers must meet to qualify contain factors that take taxes and the living expenses that we all have, car isurance, utilities, etc. included in the computation so lenders use your gross income to qualify.

Answer 4

Gross income is MUCH harder to manipulate.