Why Lenders Use Gross Monthly Income vs. Take-Home

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Real Estate

It might seem strange that mortgage companies use gross monthly income when determining affordability instead of 'take-home' pay. After all, it's the take-home pay that consumers use for their monthly expenses and bills - including the mortgage. But there are a few good reasons why lenders use the gross amount.

First, it's universal. Lenders A, B, and C all use gross monthly income to calculate debt-to-income ratio (and thus affordability), so everyone is qualified using the same guidelines. There are a few loans that do take monthly expenses and 'residual' income into consideration, but most every other program uses gross monthly income.

Second, it's a figure that most consumers readily know. Calculating net income with taxes, deductions, etc. is complicated and can vary month-to-month. Gross income is stable and easier to quickly calculate monthly. It would be impossible for lenders to adjust their loan programs for each individual's specific expenses and deductions.

Third, employers report income each year to the IRS, and the amount reported is gross income, not net. When consumers are asked to document income on their loan application, the last two years of W2 forms are needed along with recent paystubs. The gross amounts on the paystubs should align with the W2 forms. Trying to parse net income from these documents is impossible.

If you're thinking about buying your first home and want to know what you might qualify for, reach out to me. My job as a realtor in Newton is to connect you to expert mortgage lenders that I have personally worked with to help my clients become homeowners or real estate investors.


Diane Basemera is one of the top real estate agents in Newton, MA who will make sure you know what to expect, answer your questions and determine the right price to attract buyers and sell your home quickly. To know more about real estate properties and other details , contact now.