Qualifying for a mortgage may seem like a daunting process, particularly for first-time home buyers and anyone unfamiliar with the real estate industry. One of the most important elements of mortgage application approval is a steady income and sufficient funds. Keep careful track of all income documents, such as pay stubs, records of bonuses and commissions, and W-2 forms, to better prepare yourself for the mortgage application process.
Mortgage lenders want to know that you are in a stable financial position. As noted at Home Loan Learning Center, an employment history of at least two years will make your application more appealing to lenders. Income from bonuses and overtime may also increase your overall income if it is consistent and reliable. Investopedia notes that self-employed applicants may find mortgage approval more difficult than traditional W-2 employees. If you are self-employed, be sure to maximize your credit score by paying bills on time and try to pay off as much debt as possible.
When mortgage lenders process your application, underwriters use what is known as a front ratio to determine whether you qualify for the loan. The front ratio measures how your monthly mortgage payment stacks up against your gross monthly income (income before taxes are taken out). To calculate your front ratio, simply divide your potential mortgage payment by your total gross monthly income. If the result is higher than 0.28, or 28 percent, you might have a hard time obtaining a mortgage.
A back ratio, also known as a debt-to-income ratio, is another income-related figure that influences mortgage qualification. A back ratio is similar to a front ratio, except that it takes monthly credit card, vehicle and other loan payments into account. Generally, the back ratio should be lower than 36 percent for mortgage approval. To calculate your back ratio, add your potential monthly mortgage payment, as well as any monthly car payments, credit card debt or other loan payments, such as student loans. Divide the result by your monthly gross income. If the result is higher than 0.36, or 36 percent, you might have a difficult time qualifying for a home loan.
source : http://homeguides.sfgate.com/mortgage-income-qualification-rules-7719.html