Why Boosting Your Income Won't Help You Get a Mortgage Right Away

Don't count on a salary bump leading to a larger loan immediately.

When you apply for a mortgage loan, your income is one of the key factors lenders look at. Specifically, lenders assess your debt-to-income ratio (DTI), which is a measure of your debt relative to your earnings. If your DTI is too high, you won't be able to get a loan. And a higher DTI can mean a higher interest rate if you do get approved to borrow.

Since DTI measures how much debt you have relative to what you earn, you may assume that boosting your earnings would make it easier to get approved for a loan and to get a more competitive interest rate. And that is indeed true -- but not right away.

In fact, it can sometimes take a long time before a higher income has an impact on your mortgage prospects. Here's why.

Lenders may not give you credit for your higher income

If you've only recently been bumped up to a higher salary level, mortgage lenders may be wary of the possibility that you won't keep earning this extra money for the long term.

That's especially true if your income boost occurred because you changed jobs or entered a whole new career field. It can also be a concern for mortgage lenders if you're earning a larger amount of money because you've taken on new side gigs over the past few months.

Generally, lenders aren't confident that a higher salary is here to stay unless you've been earning that money for a while. Specifically, it's common for lenders to look for around two years of stable wages when deciding how much income to count for approving your loan.

If you've been earning at your higher level for only a few months, the lender may look at what your income was before the salary boost and count only that amount when approving you. For example, if you were making $2,000 per month and are now making $3,000 per month, the lender may only give you credit for $2,000 -- and would use your $2,000 earnings to calculate your DTI.

Now, in a few circumstances, it's possible that a lender would give you credit for a boosted salary even if you haven't been making those extra earnings for several years. This is more likely if your higher salary is because you got a raise in a position you worked in for a long time. However, you'll usually need an earnings history of at least a few months. And your lender may require you to get a statement from your employer indicating whether the higher pay amount is expected to continue indefinitely.

You can ask your lender about this possibility if you're concerned that you won't qualify for the loan you need at your old salary level before the pay boost. But if your lender declines, you may have to choose between buying a smaller house you can afford on your old salary -- or waiting months or even years to get a home loan you can swing on your new higher paycheck.