Income
Gross Monthly Income: Definition & Example
What Is Gross Monthly Income?
Gross monthly income is the total amount a person earns in a month before taxes, retirement contributions, insurance premiums, or other deductions are taken out.
What does gross monthly income mean?
Gross monthly income is the number landlords and lenders usually mean when they set an income requirement. A "three times the rent" rule, a debt-to-income ratio, and most loan applications all start from gross, not take-home, pay.
For a salaried worker, gross monthly income is annual salary divided by 12. For hourly workers, it is hourly rate times typical weekly hours times 52, divided by 12. For self-employed people, it is usually based on business income after business expenses but before personal income taxes, often averaged over one or two years.
Bank deposits show net pay, not gross. When income is estimated from deposits, the result is closer to take-home pay, so reviewers should keep that difference in mind when comparing it with a gross-income requirement.
Gross monthly income example
An employee earns $62,400 per year. Her gross monthly income is $62,400 ÷ 12 = $5,200. After federal and state taxes, Social Security, Medicare, and health insurance, her take-home pay is about $3,950 per month, which is what shows up as direct deposits in her bank account.
Related terms
- Net IncomeNet income is what remains after deductions. For a person, it is take-home pay after taxes and withholdings. For a business, it is profit after all expenses.
- Annualized IncomeAnnualized income is an estimate of a full year’s income calculated from a shorter period, such as projecting 12 months of earnings from a few pay periods or months of deposits.
- Rent-to-Income RatioRent-to-income ratio compares monthly rent with gross monthly income, usually shown as a percentage (rent ÷ income) or as a multiple (income ÷ rent).
- Debt-to-Income RatioDebt-to-income ratio (DTI) is the percentage of a person’s gross monthly income that goes toward monthly debt payments, including housing, car loans, student loans, and minimum credit card payments.
- 3x Rent RuleThe 3x rent rule is a common landlord guideline requiring an applicant’s gross monthly income to be at least three times the monthly rent.
Gross monthly income FAQ
- How do you calculate gross monthly income from an hourly wage?
- Multiply the hourly rate by the hours worked per week, multiply by 52, and divide by 12. For example, $22 × 40 × 52 ÷ 12 = $3,813.
- Do landlords use gross or net income?
- Most rental income requirements, such as three times the rent, are based on gross monthly income, though some landlords look at net income or deposits.
