How Much of Your Income Can Go to Mortgage: Understanding the Right Percentage for You

When purchasing a home, the question of what percent of income should go to mortgage becomes crucial. Your earnings directly impact your borrowing capacity, and lenders need to verify your ability to handle monthly payments. However, there’s no universal formula—different guidelines exist, and choosing the right approach depends on your specific financial situation.

The Standard Income-to-Mortgage Guidelines

Financial advisors and lending institutions use several benchmark models to determine how much income should realistically go toward housing costs. These percentages are based on decades of lending data and consumer financial management research.

The 28% Benchmark

The foundational rule suggests limiting your mortgage payment to 28% of your gross monthly income (before taxes). This calculation includes your principal, interest, property taxes, and homeowner’s insurance combined.

For example, if you earn $7,000 per month gross, your total housing payment shouldn’t exceed $1,960. This conservative approach prioritizes financial stability and leaves adequate room for other expenses.

The 28/36 Framework

This expanded guideline builds on the 28% rule by adding a second threshold. While 28% covers housing, the remaining 8% (totaling 36%) accommodates other debt obligations—credit cards, auto loans, utilities, and personal loans. Using the same $7,000 income example, you’d allocate $1,960 to housing and maintain $2,520 for all other debt payments.

The 35/45 Flexibility Model

This approach accommodates higher debt levels. You can spend up to 35% of gross monthly income on all debt combined, or alternatively, 45% of your take-home (after-tax) income. With $7,000 gross income, that translates to $2,450 in total debt obligations. If your take-home is $6,000 after deductions, 45% would equal $2,700.

The 25% Post-Tax Alternative

This model uses your actual after-tax income rather than gross earnings. It suggests allocating 25% of your net pay toward housing. While it provides the lowest affordability range, it works well if you’re managing significant existing debt like student loans, car payments, or credit card balances. With $6,000 monthly take-home pay, your mortgage shouldn’t exceed $1,500.

Calculating Your Personal Mortgage Affordability

Everyone’s financial picture differs, so you need to assess what percentage of income going to mortgage makes sense for your circumstances. Start by gathering key information:

Income Details: Compile both your gross and net monthly earnings from your primary job and any secondary income sources. You can find gross income on recent pay stubs; if your income fluctuates, refer to your most recent tax returns.

Current Debt Obligations: List everything you currently owe—credit cards, student loans, auto loans, and personal loans. These differ from monthly expenses (groceries, gas) which vary unpredictably.

Down Payment Capacity: Determine how much cash you can put toward the purchase. A 20% down payment typically eliminates private mortgage insurance (PMI), lowering your monthly costs, though it isn’t mandatory.

Credit Profile: Your credit score determines your interest rate. Excellent credit secures the best available rates; poor credit means higher rates and consequently higher monthly payments.

What Lenders Actually Examine: The Debt-to-Income Ratio

Beyond these general guidelines, lenders use your debt-to-income ratio (DTI) to assess whether you can comfortably manage a mortgage alongside existing obligations. They calculate DTI by totaling all monthly debt payments and dividing by gross monthly income.

Suppose your monthly earnings are $7,000, with a $400 car payment, $200 student loan payment, $500 credit card payment, and a proposed $1,700 mortgage. Your total monthly debt equals $2,800, resulting in a 40% DTI ratio.

Lenders typically prefer DTI between 36% and 43%, though some will accept higher ratios. The lower your DTI, the more competitive your mortgage pre-approval terms become. Since different lenders maintain different thresholds, shopping multiple offers helps you find the best fit for your financial profile.

Strategies to Reduce Your Monthly Housing Costs

Since your mortgage represents a substantial portion of your total debt, lowering this payment creates meaningful financial breathing room:

Consider a More Modest Home: While lenders might approve you for the maximum amount, you needn’t spend it all. A less expensive property means proportionally lower payments and more flexibility elsewhere in your budget.

Increase Your Down Payment: Every additional dollar you put down reduces your loan amount and subsequent monthly payment. Prioritizing savings before purchase pays dividends over the loan term.

Improve Your Interest Rate: Rates primarily depend on credit scores and DTI. Paying down existing debts—particularly high-interest credit cards—accomplishes two goals: it lowers your DTI and simultaneously improves your credit score, qualifying you for better rates.

Beyond Mortgage Payments: The Complete Homeownership Picture

Home purchase represents the largest single expenditure for most people. Beyond the mortgage itself, budgeting for additional costs prevents financial surprises:

Routine Maintenance and Repairs: Homes require ongoing upkeep. Older properties might need plumbing updates, roof repairs, or HVAC servicing. A professional home inspection identifies major issues before purchase, which you can use as negotiation leverage.

Lawn and Landscaping: If your neighborhood doesn’t provide communal lawn service, you’ll cover this yourself—either through hiring professional maintenance or purchasing equipment and doing the work independently.

Property Improvements: From minor updates like cabinet hardware to major renovations like kitchen remodels or garage replacements, improvement costs accumulate over time. Budget annually for these predictable expenses.

Understanding what percent of income should go to mortgage requires matching guideline recommendations to your actual financial circumstances, stress-testing those numbers against real-world housing markets, and ensuring you’re not overextending yourself. The right percentage protects both your homeownership dream and your financial security.