Income Qualifications
When you’re applying for mortgage financing, income qualification is one of the most critical parts of the approval process. When more than one borrower applies for a mortgage—lenders use a variety of metrics to determine affordability. One such metric is Total Gross Income—refers to all pre-tax income from all borrowers on the application or Qualifying Income—refers to income actually used to approve a loan.
The per capita income
Lenders does not necessarily include income from non-borrower household members. Lenders may only consider income from applicants who are obligated on the loan, even if others live in the household.
Annual income used in USDA, FHA, and adult affordable housing programs includes all income from all adult household members, regardless of whether they are on the loan.
The Area Median Income (AMI) comparison used by lenders/programs to determine if your household income falls under a specific percentage of AMI to qualify for programs like: Freddie Mac’s Home Possible®, Fannie Mae’s HomeReady®, and other local down payment assistance programs.
In this context of co-borrowing, I personally refer income qualifications as Per Capita Income.
Per capita income refers to the average income earned per person in a household or a borrower group.
In mortgage lending, it’s used to get a snapshot of how income is distributed across multiple borrowers—particularly in programs that require income limits or affordability thresholds.
Mortgage Underwriters approve co-borrower loans based on the combined gross qualifying income of all borrowers—without dividing it per person. The total income is matched against total debts to ensure the group meets the loan program’s DTI limits.
How mortgage underwriters calculate co-borrowers income for loan approval
Step 1: Add up all qualifying incomes together
The underwriter combines the gross monthly income of all borrowers on the loan application.
Each borrower’s income must be:
- Verifiable (via pay stubs, W-2’s, tax returns)
- Stable likely to continue for at least 3 years
For example:
Borrower A earns $5,000 per month
Borrower B earns $4,000 per month
Combined gross income = $9,000 per month
2. Determine the Total Monthly Debt
This includes:
Existing debts (car loans, student loans, credit cards)
Projected housing expenses (mortgage principal, interest, taxes, insurance—also known as PITI)
Any other recurring obligations.
3. Calculate the Debt-to-income (DTI) Ratio
DTI is the main ratio underwriters use to determine affordability.
DT formula: Total Monthly Debt Payments/Combined Gross Monthly Income
Ex. Total debt=$3,600 per month / Income=$9,000 per month
The DTI is 40%.
Most lenders have DTI limits (e.g. 43-50%) depending on the loan type.
4. Evaluate Each Borrower’s Credit, But Combine Income
Even though income is combined, each co-borrower’s:
- Credit Score
- Employment history
- Asset contribution
is individually reviewed. The lowest credit score among the borrowers typically determines pricing or approval thresholds.
5. No splitting or Averaging
Lenders do not average or divide income by the number of borrowers
All qualifying income is aggregated to determine if the group can afford the loan.
It’s important to note:
If a co-borrower has income, but poor credit, it can negatively affect the approval, even if their income helps.
Disclaimer: The information provided in this blog is for general informational purposes only and does not constitute professional financial, legal, or mortgage advice. While we strive to provide accurate and up-to-date content, we do not guarantee the completeness, reliability, or accuracy of the information presented. Mortgage calculations, lending guidelines, and related financial data may vary by lender, location, and individual borrower profiles. Readers are strongly encouraged to consult with a licensed mortgage professional, financial advisor, or legal expert before making any financial decisions based on the content of this blog. We are not responsible for any errors or omissions or for any outcomes resulting from the use of this information.