Determining how much of your income should go to your mortgage should start with your budget and long-term financial plan, but there are also some industry formulas you can use to help.
One of the simplest is a rule of thumb to borrow a maximum of two to three times your household income to buy a home. According to the Census Bureau, the median household income in the U.S. was just over $80,600 in 2023. If you earn the median income, this rule suggests you borrow between $161,200 and $241,800 for a home. (Keep in mind this is the amount you borrow — after making a down payment. It’s not necessarily the price of the house.)
Other rules are slightly more complicated but can also help home buyers and lenders determine an appropriate budget.
Learn more: Here’s how much house you can afford with a $70,000 salary
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Generally, the most popular rule followed by lenders and borrowers is the 28/36 rule, which pertains to what mortgage lenders call your debt-to-income ratio (DTI).
There’s the front-end ratio, which compares your mortgage payment with your income. Under the 28/36 rule, lenders prefer that your mortgage payment amounts to no more than 28% of your gross monthly income (the amount you earn before taxes). This includes your mortgage principal, interest, homeowners insurance, property taxes, and homeowners’ association fees, if applicable. The 28% rule does not factor in other housing costs, such as utilities.
For example, if you earn the median income of $80,600, your gross monthly income is $6,717. To meet the 28% rule, your monthly mortgage should be $1,881 or less.
The 36% rule refers to what mortgage lenders call your back-end DTI ratio, which compares all recurring debt, such as your housing payment, credit cards, student loans, and auto loans, with your income. Lenders prefer that these debts amount to no more than 36% of your gross monthly income.
For instance, if your gross monthly income is $6,717, as in the example above, your monthly debt payments should be $2,418 or less.
While the 28/36 rule is commonly used, many lenders are more flexible with their loan requirements. Some loans, particularly those insured by the government, such as FHA, VA, and USDA loans, allow borrowers to have higher debt levels.
In addition, there are other ways to calculate the percentage of income for a mortgage, including the 35/45 rule, which refers to another way of measuring your overall debt.
Lenders want your monthly debts to be affordable and recommend keeping your total monthly debt — including your mortgage payment — under 35% of your pretax income and 45% of your post-tax income.
To calculate what percentage of your income should go to your mortgage with this method, you can determine your monthly income before taxes and multiply it by 35%, or 0.35. Then multiply your monthly after-tax income by 45%, or 0.45. An affordable monthly debt payment should be in the range of these two results.
For example, if your gross (pretax) monthly income is $6,717, your monthly debt payments should be $2,351 or less. Monthly after-tax pay varies based on your earnings and where you live. For a gross monthly income of $6,717, your after-tax pay is approximately $5,093 in Washington, D.C. In that case, your total monthly debt payments should be $2,292 or less.
This rule can give you a better sense of what percentage of your income should go to your mortgage because it considers your after-tax pay — or the money you actually pocket for your work.
The strictest rule that some lenders and borrowers follow is the 25% rule, which says your monthly housing payment should be 25% or less of your monthly take-home pay. In the scenario above, you would need your monthly mortgage payment to be $1,273 or less.
If you’re concerned about overspending or have significant expenses besides your housing payment, the 25% rule can provide a safe guideline for how much your mortgage should be. It can also be a smart one to follow if you have a lot of pre-existing debt or unexpected expenses and need to make sure you have plenty of cash flow available.
Dig deeper: How much house can you afford? Use the Yahoo Finance home affordability calculator.
Your monthly mortgage payment isn’t just a single fee. It’s actually comprised of several different expenses all lumped together.
These fall under the acronym PITI, or principal, interest, taxes, and insurance. Here’s what those mean:
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Principal: This is the amount that goes toward your mortgage loan’s principal balance — the total you actually borrowed. At the beginning of your loan term, you’ll typically pay less toward principal and more toward interest. As you get toward the end of your loan, it’s the opposite.
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Interest: This is the interest you’re charged for taking out a mortgage. It’s your lender’s profit.
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Taxes: This is money stowed away to cover the costs of property taxes on your house. Your loan servicer puts it in an escrow account and holds it until the tax bill comes due.
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Insurance: This is the amount that goes toward your homeowners insurance premiums. It is also stored in an escrow account until it is needed.
Sometimes, you will also pay for mortgage insurance as a part of your monthly payment. You’re charged this on FHA loans, or conventional loans if you make a down payment under 20%.
While your income is an important determinant of how much your mortgage should be, other factors impact how much you can borrow. Lenders will also review the following:
Your mortgage lender will compare your gross monthly income with the minimum payment on all recurring debt, including your housing payment, to find your debt-to-income ratio (DTI). Your maximum allowable DTI depends on the loan program and lender, but generally, the lower your ratio is, the more easily you can qualify for a mortgage. For most conventional loans, you can expect to need a 36% DTI or lower.
Lenders review your credit score to evaluate how well you handle debts. Generally, borrowers with a higher credit score have a better chance of loan approval and pay lower interest rates. Borrowers with a credit score in the mid-700s or above typically pay the lowest mortgage rates, while those with lower credit scores pay higher rates, as they present more risk of defaulting on mortgage payments than those who manage their debts more responsibly.
Your down payment also factors into your eligibility for a mortgage. A higher down payment means you’re borrowing less and can make the loan a lower risk for the lender (meaning it’s easier to qualify for). Larger down payments can also result in lower monthly payments and lower mortgage interest rates, and they can help you avoid needing mortgage insurance, too.
If you’re on a tight budget and need a low mortgage payment, several strategies can help. These include:
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Increase your credit score. Paying your bills on time and reducing debt can improve your credit score. Generally speaking, borrowers with scores in the mid-700s or higher will get the best mortgage rates.
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Make a bigger down payment. On conventional loans, if you make a down payment of 20% or more, you won’t have to pay private mortgage insurance (PMI), which will lower your monthly housing payment. In addition, your home loan balance will be lower, and you’ll usually get a lower mortgage rate too.
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Consider a longer loan term. Your monthly housing payments are lower when you stretch them out over more months, so you might opt for a longer loan term if your lender offers one. Just keep in mind: You will pay more interest over the life of the loan (and may get a higher interest rate).
If you need help securing a lower mortgage payment, shopping in a smaller price range can help. Talk to a loan officer if you need help determining an appropriate price range.
Learn more: 30-year vs. 15-year mortgage — How to decide which is better
Formulas that estimate your chances of a loan approval based on your income are helpful — but other factors influence how much of your income to spend on your mortgage that don’t appear on typical mortgage applications.
Mortgage lenders will see recurring debt such as student loans, car loans, and credit card payments on your credit report, but items such as childcare, utilities, tuition, and life insurance premiums are not factored into your DTI or housing costs. Neither is discretionary spending for vacations, gifts, and activities such as golf or skiing.
Regardless of how much a lender says you can borrow, you’ll want to look carefully at all your expenses to decide how much you want to spend on your mortgage payments. Saving for retirement, college tuition, or other financial goals should also be considered when estimating what percentage of your income should go to your mortgage.
Read more: Can you buy a house when you have student loan debt? Yes, and here’s how.
Yes, 50% of your take-home pay is typically too much to put toward a mortgage. However, depending on your mortgage lender and the type of home loan you’re getting, your back-end debt-to-income ratio may be as high as 50%. The back-end ratio refers to the monthly payments that go toward all your debts, not just your mortgage.
Spending 40% of your total income on your mortgage is probably too much — most mortgage lenders will either not approve your application or charge you a very high interest rate. Perhaps more importantly, it could make you “house poor” to spend so much of your income on a mortgage, leaving little room for other expenses. As a general rule, you should try to spend no more than 28% of your gross income on your mortgage payment.
The amount of house you can afford with a $120,000 salary depends on how much other debt you have and the size of your down payment. Generally speaking, you should try to borrow no more than two to three times your annual income.
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). There’s also a 25% rule, which states that your monthly payment should not exceed 25% of your post-tax monthly income.
Yes, your down payment impacts your mortgage payment in several ways. First, your loan balance depends on how much of the home purchase you cover with your down payment, so the more you put down, the less you borrow and the lower your monthly payment is. In addition, your down payment can also impact your interest rate and whether you need mortgage insurance or not — both factors that can affect your payment.
In addition to the principal and interest on your loan, you’ll need to pay homeowners insurance and property taxes. Depending on the type of mortgage loan and the size of your down payment, you might pay for mortgage insurance too. If you buy a home within a homeowners’ association, you could also have homeowner’s association (HOA) dues. Other housing expenses include utilities, maintenance, and repairs.
How much debt can you have and still qualify for a mortgage?
Your debt-to-income ratio should be as low as possible. Many lenders cap the maximum DTI ratio at 43%, but some lenders and loan programs allow a ratio as high as 50%.
Yes, your mortgage payment can change for several reasons. If you have an adjustable-rate mortgage (ARM), your interest rate can change according to the terms of your loan. In addition, your payment can change if your private mortgage insurance is eliminated, which automatically happens when your loan-to-value ratio reaches 78%. Other adjustments to your mortgage payment occur when your property taxes or homeowners insurance premiums change.
The 28/36 rule is a good general rule of thumb, but it doesn’t work for everyone. For instance, in very high-priced housing markets, keeping your housing costs under 28% of your monthly income may be impossible. Talk to a local loan officer or real estate agent to determine what makes sense for where you live.
This article was edited by Laura Grace Tarpley.
