I make good money. So why can’t I qualify for more?

It’s a fair question.

The confusing part is that mortgage qualification isn't based on income alone.

Your debts matter

When a lender looks at your application, they have to consider your existing monthly debt obligations.

That can include:     

• Car loans and leases

• Student loans     

• High credit card balances

• Lines of credit

• Other mortgage or housing payments

Even if you have a strong income, monthly payments can drastically reduce the mortgage amount you qualify for.

Your income isn't always counted dollar-for-dollar

This can be especially important if you earn income from:

• Overtime

• Bonuses

• Commission

• Business income

Different lenders have different requirements for how that income is calculated and what documentation is needed. Two people with the same gross income could easily qualify for different mortgage amounts.

The mortgage stress test

Lenders don't look at whether you can make the mortgage payment at today's rate, you must qualify using the stress test. The rate used for the stress test is higher of either the benchmark rate (5.25%) or your contract rate +2% (i.e. if your contract rate was 4.5%, you would be stressed tested at 6.5%).

The stress test might seem like a nuisance, but it is useful in making sure borrowers aren't taking on more debt than they can reasonably manage, especially in a situation where interest rates rose or their financial circumstances changed.

Good credit doesn't mean you'll qualify for more.

Your credit score tells a lender a lot about how you've managed credit. Your income and debts tell them more about how much debt you can qualify to carry.

They're related, but they're not the same thing.

Someone with a credit score of 800 making $100,000/year could qualify for less than someone with a credit score of 680 making $85,000/year. (It happens more than you think!)

The bottom line …

Get the numbers figured out before you start shopping. That way, you know what your actual buying power looks like and you won't fall in love with a home that doesn't fit your financing.

If you are thinking about buying, I'd be happy to run through the numbers with you and help you understand what you may qualify for.