How Much of Your Income Should Go to Mortgage? A Complete Financial Guide

Determining how much of your income should go to mortgage payments is one of the most critical financial decisions you’ll make when buying a home. Your lender will scrutinize your earnings to ensure you can reliably meet monthly payments, but there’s no universal formula—different models work for different financial situations.

Understanding the Different Income-to-Mortgage Ratios

When lenders evaluate your mortgage application, they apply various benchmarks to determine how much of your income should go to mortgage payments and overall debt. Here are the most widely recognized approaches:

The 28% Threshold

The simplest rule states that your monthly mortgage payment should not exceed 28% of your gross monthly income (the amount you earn before tax deductions). This 28% covers your principal, interest, property taxes, and homeowner’s insurance combined.

Practical example: If your household earns $7,000 monthly gross, 28% equals $1,960—the maximum recommended for your mortgage payment. This conservative approach prioritizes flexibility in your budget.

The 28/36 Combination Method

This approach builds on the 28% rule by adding another layer: while 28% of your income should go to mortgage payments, up to 36% can be allocated to your entire debt portfolio. Your total debt ceiling includes credit cards, auto loans, utilities, and any other monthly obligations.

How it works: With a $7,000 gross income, you have $2,520 available for all debt (36%). After allocating $1,960 to your mortgage, you’re left with $560 for other financial obligations. This model ensures your housing doesn’t crowd out other necessary payments.

The 35/45 Flexibility Model

Some borrowers benefit from the 35/45 framework, which offers two calculation paths. You can limit total debt (including mortgage) to 35% of gross income, or alternatively cap it at 45% of your net (take-home) pay. This dual approach accommodates varying tax situations and provides breathing room for those with higher debt loads.

Application example: At $7,000 gross monthly income, 35% of gross equals $2,450 for all debt. But if your take-home after taxes and deductions is $6,000, then 45% of net income is $2,700. This gives you a range—between $2,450 and $2,700—to work with when planning how much of your income should go to mortgage and other obligations.

The 25% After-Tax Conservative Model

The most restrictive option uses your net income rather than gross earnings. Under this model, your mortgage payment should not exceed 25% of what you actually take home. This approach is ideal if you’re carrying substantial existing debt or want maximum financial cushioning.

Real scenario: With $6,000 in monthly take-home pay, your mortgage shouldn’t surpass $1,500. While this limits your borrowing power, it’s particularly smart if you have car payments, student loans, or credit card debt already in place.

Calculating How Much House You Can Realistically Afford

Before selecting any model above, gather your financial snapshot:

Income assessment: Compile both gross and net income figures—check your recent pay stubs. If earnings fluctuate, reference your latest tax return for an accurate baseline.

Debt inventory: List all current obligations: credit cards, student loans, auto financing, personal loans, and any other monthly payments. Don’t confuse debt with variable expenses like groceries or gas.

Down payment capacity: Determine how much cash you can deploy upfront. A 20% down payment typically eliminates private mortgage insurance (PMI), reducing your overall costs, though it’s not mandatory. Higher down payments directly lower your monthly obligation.

Credit standing: Your credit score determines the interest rate you’ll receive. Stronger scores unlock better rates, which meaningfully reduce monthly payments over the loan’s life.

The Debt-to-Income Ratio: What Lenders Actually Care About

Lenders rely heavily on your debt-to-income (DTI) ratio to approve mortgages. This metric reveals what percentage of your gross income goes toward all debt payments combined.

Calculating your DTI: Add every monthly debt payment (mortgage, car loan, credit cards, student loans) and divide by your gross monthly income. If you earn $7,000 and owe $400 (car) + $200 (student loans) + $500 (credit cards) + $1,700 (current mortgage) = $2,800 total, your DTI is 40% ($2,800 ÷ $7,000).

Target range: Most lenders prefer DTI between 36% and 43%. While some will stretch higher, lower ratios significantly improve pre-approval odds. Since different lenders have varying DTI thresholds, shopping multiple options helps you find the best fit for your situation.

Strategies to Lower Your Monthly Mortgage Obligation

Since your mortgage typically represents your largest monthly expense, even small adjustments yield significant savings:

Purchase a more modest property: Approval limits don’t mean you must spend the maximum. Selecting a lower-priced home directly reduces your payment burden.

Increase your down payment: Every additional dollar down reduces what you finance and what you’ll pay monthly. Building extra savings before purchase pays long-term dividends.

Secure the best available interest rate: Interest rates hinge on credit scores and DTI ratios. Aggressively paying down credit cards, auto loans, and student debt improves your DTI and credit profile, potentially lowering the rate your lender offers.

The Hidden Costs Beyond Your Monthly Payment

Home ownership extends far beyond mortgage obligations. Budget for:

Maintenance and upkeep: Regular maintenance is non-negotiable. Special features like pools require ongoing care—pressure washing decks annually, chlorine, repairs.

Landscaping expenses: Unless your community provides lawn services, you’re responsible for cutting, hedging, and landscaping—either hiring professionals or purchasing equipment yourself.

Repairs and improvements: Your inspection report will flag aging systems. A new roof, toilet, garage door, or kitchen updates aren’t optional forever. Use inspection findings as negotiation leverage to reduce the purchase price or request pre-purchase installations.

Understanding how much of your income should go to mortgage payments—and planning for ancillary costs—positions you to make sustainable homeownership decisions that strengthen your financial future rather than overextend your resources.