“There’s no one-size-fits-all answer to what percentage of your income should go toward your mortgage,” says Carl Holman, communications manager at A&D Mortgage. The best rule for you depends on your financial situation and goals. There are several different methods for calculating mortgage affordability. This rule of thumb may be a good fit for borrowers with a lot of existing debt, like a large student loan or credit card balance. So if you make $10,000 after taxes, then you shouldn’t take on a monthly mortgage payment over $2,500. It states that your housing payments should be less than 25% of your monthly take-home pay. The 25% rule has the strictest guidance for home affordability. The 25% post-tax ruleīest for: Those with significant debt that want to avoid financially overextending. With this rule, your monthly debts shouldn’t exceed $4,500. So let’s say you earn $12,000 before taxes, but you bring home $10,000. Under this rule, your total monthly debts, including your housing payment, shouldn’t be more than 35% of your gross income or 45% of your take-home pay. But it gives you more wiggle room for the amount you can spend. This two-part rule also provides guidance for the amount of debt you should have relative to your income. The 35%/45% ruleīest for: Those without a lot of monthly expenses, and are comfortable dedicating a larger portion of their income toward housing payments. So if your gross household income is $12,000, then you can spend up to $3,360 on your mortgage, while your other debts shouldn’t exceed $960 - for a total monthly debt load of $4,320. With this rule, your mortgage payment shouldn’t exceed 28% of your gross monthly income, and your total monthly debts (including your housing payments) shouldn’t exceed 36%. The 28%/36% rule ensures you keep all of your debts under control. The 28%/36% ruleīest for: Those who have other debts, like a car payment, and want their overall debt load to feel manageable. So if you and your partner earn $12,000 before taxes, for example, then your monthly mortgage shouldn’t be any higher than $3,360. This rule states that your total mortgage payment - including principal, interest, taxes and insurance - shouldn’t exceed 28% of your gross monthly income. The 28% ruleīest for: Those who want an affordable housing payment and need to figure out how much of their income should go toward a mortgage payment each month.īorrowers frequently use the 28% rule when determining an affordable housing payment. Here are some common formulas you can use as a starting point. If you’re uncomfortable taking on debt, you can always choose to spend less than what you qualify to borrow. Overall, the amount you should spend on your monthly mortgage payment depends on your salary, current debt and financial goals.
What percentage of your income should toward your mortgage payment? If you’re in the market for a home and questioning what’s within your budget, here’s what to know. But determining what’s affordable versus what isn’t can be challenging.įortunately, some basic guidelines can serve as a baseline for calculating home affordability. This insight can help you avoid a monthly mortgage payment that’s way too high.
Before you start the homebuying process, it’s important to figure out how much you should spend on your home.