There are a number of different factors to consider Part of the Series Using a Mortgage Calculator
If youre looking to buy a home, its important to understand how much you can afford to pay. A general guideline for an affordable mortgage is one equal to roughly 200% to 250% of your gross annual income. But the exact amount you can borrow isn’t just based on how much a mortgage lender is willing to lend you. It also depends on a number of other things. Youll need to evaluate your finances, preferences, and priorities. Heres everything you need to consider to determine how much you can afford.
Buying a home is an exciting milestone in life However, it also requires careful financial planning, especially when it comes to determining how much of your monthly income can comfortably go towards your mortgage payment This article provides a comprehensive guide on recommended mortgage-to-income ratios and tips for keeping your home affordable.
Overview of Common Mortgage-to-Income Standards
When you apply for a mortgage, lenders want to see that your total monthly debt payments don’t go over a certain amount of your monthly gross income. Here are some of the most common mortgage-to-income ratio benchmarks .
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28% rule – Your total monthly mortgage payment, including principal, interest, taxes and insurance, shouldn’t exceed 28% of your gross monthly income.
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28/36 rule – Your total monthly mortgage payment shouldn’t exceed 28% of your gross monthly income, and your total monthly debt payments, including your mortgage, shouldn’t exceed 36% of your income.
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The 25% post-tax rule says that your monthly mortgage payment shouldn’t be more than 25% of your take-home pay after taxes. This is a more conservative guideline.
While these standards provide a helpful starting point, your ideal ratio depends on your individual financial situation and goals. A mortgage professional can provide personalized guidance.
Factors That Determine Your Affordable Mortgage Payment
When deciding what you can comfortably afford for a mortgage payment each month, here are some key factors to consider:
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Your income – Your total monthly gross income, overtime and bonuses included. Make sure to document both gross and take-home pay.
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Existing debts – Your current recurring monthly debts like car loans, student loans, credit cards, etc. Don’t count one-time expenses.
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Down payment amount – The more you put down upfront, the less you’ll need to borrow and the lower your monthly payments.
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Credit score – A higher score means better mortgage rates and lower payments. Aim for at least a 740 FICO score.
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Interest rates – The lower the rate offered by your lender, the lower your monthly payment. Shop around for the best rates.
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Loan term – Opting for a 30-year term instead of 15 years means lower monthly payments but higher total interest paid.
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Property taxes – Make sure to account for property tax payments if not included in your monthly mortgage bill.
Tips for Lowering Your Monthly Mortgage Payment
If the amount you want to borrow for a mortgage is too high for your budget, here are some ways to lower your monthly payments:
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Put down a larger down payment of 20% or more to decrease the loan amount.
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Improve your credit score to get better interest rates from lenders.
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Buy a less expensive house that comfortably fits your income and lifestyle.
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Opt for a longer 30-year loan term instead of a 15-year term.
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Make extra mortgage payments whenever possible to pay down the balance faster.
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Refinance your mortgage if rates have dropped since you obtained your original loan.
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Request a property tax reassessment from your county to potentially lower taxes.
Maintaining a Comfortable Mortgage-to-Income Ratio
When determining an appropriate percentage of your income to allocate towards a mortgage payment each month, focus on maintaining a ratio you can manage long-term without straining your budget. Here are some tips:
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Don’t go over what the lender wants just because you’ve been approved for more money. Only borrow what you can comfortably afford.
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Build in a buffer for unexpected expenses and financial emergencies so you don’t risk defaulting on your mortgage.
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Avoid allocating more than 28-36% of your income if possible. Going higher means less money for other essentials.
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Make sure you can still contribute to retirement savings and other financial goals after your mortgage payment.
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Consider future plans for a family or career change that could impact your income or expenses down the road.
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Get quotes from multiple lenders and compare all costs—not just monthly payments.
By following mortgage affordability guidelines and seeking professional advice, you can make a well-informed decision on the ideal percentage of your salary to allocate towards your monthly home loan payment. With careful planning, you’ll enjoy homeownership without breaking the bank.
How to Calculate a Down Payment Amount
The down payment is the amount that the buyer can afford to pay out-of-pocket for the residence, using cash or liquid assets. Lenders typically demand a down payment of at least 20% of a home’s purchase price, but many let buyers purchase a home with significantly smaller percentages. Of course, the more down payment you can make, the less loan you’ll need and the better off the bank will see you.
For instance, if a person wants to buy a $100,000 home and can afford to pay $10,000 down, they will need to finance $90,000.
Besides the amount of financing, lenders also want to know the number of years for which the mortgage loan is needed. A short-term mortgage has higher monthly payments but is likely less expensive over the duration of the loan.
Homebuyers need to come up with a 20% down payment to avoid paying private mortgage insurance.
Personal Considerations for Homebuyers
A lender may tell you that you can afford a big house, but are you really? Keep in mind that the lender is mostly interested in your gross pay and other debts. The issue with using gross income is very simple: you only count as much as 30% of your paycheck, but what about taxes, FICA deductions, and health insurance premiums? You should also think about your pre-tax retirement contributions and college savings, if you have kids. Even if you get a refund on your tax return, that doesn’t help you now—and how much will you get back?.
That’s why some financial experts feel it’s more realistic to think in terms of your net income and that you shouldn’t use any more than 25% of your net income on your mortgage payment. Otherwise, while you might be able to pay the mortgage monthly, you could end up house-poor.
The costs of paying for and maintaining your home could take up such a large percentage of your income—far and above the nominal front-end ratio—that you won’t have enough money left to cover other discretionary expenses or outstanding debts or to save for retirement or even a rainy day. Whether you should be house-poor or not is mostly a matter of personal choice; getting approved for a mortgage doesn’t mean you can afford the payments.
What Percent Of Income Should Go To Housing?
FAQ
Is 40% of income too much for a mortgage?
What percent of my salary should go to a mortgage? According to the commonly used 28/36 rule, no more than 28% of your pre-tax monthly income should go toward your mortgage payment (including property taxes, homeowners insurance, and mortgage insurance). Jun 12, 2025.
Can I afford a $300 k house on a $70 k salary?
Can I afford a $300K house on a $70K salary? If you have minimal debts then a $70,000 salary might be enough to afford a $300,000 house. The size of your down payment and your mortgage interest rate will be important variables. Try to keep your monthly house payments below a third of your monthly gross income.
Can I afford a 500k house on 100k salary?
At $100K income, you can get an $450K mortgage. You will need a bigger down payment. Work on a budget and see if you can keep up with all the payments. It would be very tight.
Is the 28/36 rule realistic?
According to Bankrate and The Muse, the 28/36% rule, which says you shouldn’t spend more than 20% of your gross monthly income on housing costs and no more than 36% of your gross monthly income on all debt payments, is a good rule of thumb but not always realistic in today’s market.